CIHM 

Microfiche 

Series 

(IMonographs) 


ICIMH 

Collection  de 
microfiches 
(monographles) 


C.n.di.n  ln.t»tuf  for  Hi.toric.1  Mlcror.productlon.  /  ln.tltut  c.n.di.n  d.  mleror.productlon.  hl.torlquM 


©199 


Technical  and  Bibliographic  Notes  /  Notes  techniques  et  bibliographiques 


The  Institute  has  attempted  to  obtain  the  best  original 
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the  images  in  the  reproduction,  or  which  may 
significantly  change  the  usual  method  of  filming  are 
checked  below. 


D 


Coloured  covers  / 
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□   Covers  damaged  / 
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Cover  title  missing  /  Le  titre  de  couverture  manque 

Coloured  maps  /  Cartes  g^ographiques  en  couleur 

I      I   Coloured  ink  (i.e.  other  than  blue  or  black)  / 


Encre  de  couleur  (i.e.  autre  que  bleue  ou  noire) 

Coloured  plates  and/or  illustrations  / 
Planches  et/ou  illustrations  en  coul  ur 


D 
D 
D 


D 


D 


Bound  with  other  material  / 
Relid  avep  d'autres  documents 

Only  edition  available  / 
Seule  Edition  disponible 

Tight  binding  may  cause  shadows  or  distortion  along 
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I'ombre  ou  de  la  distorsion  le  long  de  la  marge 
int^rieure. 

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omitted  from  filming  /  II  se  peut  que  certaines  pages 
blanches  ajout^es  lors  d'une  restauration 
apparaissent  dans  le  texte,  mals,  iorsque  cela  4tait 
possible,  ces  pages  n'ont  pas  M  film^es. 

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L'Institut  a  microfilm^  le  meilleur  exemplaire  qu'il  lui  a 
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obtenir  la  meilleure  image  possible. 

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Thia  ittm  It  fllmtd  •!  Ihi  rtduetlon  rillo  ehtcktd  btlow  / 

C«  doeumani  tit  litm«  au  taux  de  rtduetlon  indiqut  cl-dtiioui. 


lOx 

14x 

18x 

22x 

36x 

30x 

1       1        1 

>/  1        1        1 

MM 

12x 


16x 


20x 


24x 


28x 


32x 


The  copy  filmsd  h«r«  has  b««n  rsproducad  thanks 
to  ths  gansrosity  of: 

National  Library  of  Canada 


L'axamplaira  filmi  fut  raproduit  grica  A  la 
ginArosit*  da: 

Bibliotheque  nationale  du  Canada 


Tha  imagas  appaaring  hara  ara  tha  bast  quality 
possibia  considaring  tha  condition  and  lagibility 
of  tha  original  copy  and  in  kaaping  with  tha 
filming  contract  spacificationa. 


Original  copias  in  printad  papar  covars  ara  filmad 
baginning  with  tha  front  covar  and  anding  on 
tha  last  paga  with  a  printad  or  iliustratad  impraa- 
sion.  or  tha  back  covar  whan  appropriata.  All 
othar  original  copias  ara  filmad  baginning  on  tha 
first  paga  with  a  printad  or  iliustratad  impras- 
sion,  and  anding  on  tha  last  paga  with  a  printad 
or  illuatratad  imprassion. 


Las  imagas  suivantas  ont  *ti  raproduitas  avac  Is 
plus  grand  soin.  compts  tanu  da  la  condition  st 
da  la  nanati  da  l'axamplaira  film*,  at  an 
conformity  avac  las  conditions  du  contrst  ds 
filmaga. 

Laa  axamplairaa  originaux  dont  la  couvartura  an 
papiar  ast  imprimia  sont  filmAs  an  commancant 
par  la  pramiar  plat  at  an  tarminant  soit  psr  Is 
darniira  paga  qui  comporta  una  amprainta 
d'imprassion  ou  d'illustration.  soit  par  la  sacond 
plat,  salon  la  eas.  Tous  las  sutras  axamplairas 
originaux  sont  film*s  •n  commandant  par  la 
pramiAra  paga  qui  comporta  una  amprainta 
d'imprassion  ou  d'illustrstion  st  sn  tarminant  par 
la  darniira  paga  qui  comporta  una  taila 
amprainta. 


Tha  laat  racordad  frama  on  aach  microficha 
shall  contain  tha  symbol  ^^  (moaning  "CON- 
TINUED"), or  tha  symbol  y  (moaning  "END"), 
whichavar  appliaa. 

Maps,  platas.  charts,  ate.  may  ba  filmad  at 
diffarant  raduction  ratios.  Thosa  too  larga  to  ba 
antiraly  includad  in  ona  axposura  ara  filmad 
baginning  in  tha  uppar  laft  hand  cornar,  laft  to 
right  and  top  to  bottom,  as  many  framas  as 
raquirad.  Tha  following  diagrams  illustrata  tha 
mathod; 


Un  das  symbolas  suivants  spparaitra  sur  la 
darniAra  imaga  da  chaqua  microficha.  salon  la 
cas:  la  symbols  — ^  signifia  "A  SUIVRE",  la 
symbols  V  signifia  "FIN". 

Laa  cartas,  planchas,  tablaaux.  ate,  pauvant  itra 
filmis  *  das  taux  da  reduction  diff«rants. 
Lorsqua  la  documant  ast  trop  grand  pour  Atra 
raproduit  an  un  saul  clich*,  il  ast  film*  A  psrtir 
da  I'angla  supAriaur  gaucha,  da  gaucha  A  droita. 
at  da  haut  an  bas,  an  pranant  la  nombra 
d'imagas  nAcassaira.  Las  diagrammas  suivsnts 
illustrant  la  mAthoda. 


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(ANSI  and  ISO  TEST  CHART  No   2) 


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,i 


PRINCIPLES  OF  ECONCJMICS 


ill^M 


THK  MACMILLAN  COMPANV 

NEW  VORK   •    BOSTON   •    CHICAliO 
SAN   FKANCISCO 

MACMILLAN  &  CO.,  Limitid 

I.ONnON  ■    BOMBAY  •   CALCUTTA 
MILBOURNB 

THE  MACMILLAN  CO.  OF  CANADA,  Lm 

TORONTO 


i 


PRINCIPLES  OF  ECONOMICS 


BY 


F.   W.    TAUSSIG 

BEMKY    LEK   PHOFK980K   OF    ECONOMICS 
IN   HARVARD   UNIVERSITY 


VOLUME  II 


NctD  gork 

THE  MVCMILLAN  COMPANY 

1918 

All  right*  reMrvfil 


i 


181764 


CorVRIGHT,    T9II, 

Bv  THE  MACMILLAN   COMPANY. 


Set  up  and  elcctiotyped.     Published  October,  1911.     Reprinted 
December,  1911  ;  April,  August.October,  191a  :  February, September, 
December,  1913. 


J.  8.  Cuclilnft  <'o.  —  F.erwick  &  Smith  Oo. 
Norwood,  MMt.,  U.S.A. 


.M 


CONTENTS 


BOOK  V 

THE  DTSTRIBUTIGX  OF   WEALTH 

CHAPTER   38 

Interest   ok   Capital   used  in  Prodlctiox.      The  Conditions  of 
Demand    

Section  1.  What  is  meant  by  distribution,  3  — Sec.  2.  The 
essential  problem  as  to  interest.  Money  is  not  the  cause  of  inter- 
est, nor  does  its  quantity  affect  the  rate  of  interest,  4  — Sec.  3. 
Why  there  is  a  demand  for  present  means  ;  tlie  effectivene.ss  of  tlie 
time-using  processes  of  production.  Is  capital  productive  ?  5  — 
Sec.  4.  How  the  marginal  effectiveness  or  productivity  of  capital 
determines  the  rate  of  return.  A  consumer's  surplus  arises  from 
the  more  effective  applications.  Analogy  to  the  problera.s  of  value 
and  utility,  8  — Sec.  5.  Is  there  a  general  tendency  to  diminish- 
lug  returns  from  successive  doses  of  capital  ?  U. 


VOL.  II 
I'AliES 

3-15 


'i 


CHAPTKR  39 
Interest  {contimied).  The  Eqi  ii.iiihu-m  ok  Demand  and  Sppply  10-28 
Section  1.  Accumulation  of  present  means  needs  an  inducement, 
Ifl  — Sec.  2.  The  gradations  in  the  disposition  to  save.  Cases 
where  the  inducement  needs  to  be  slisjlit,  Kt  — Sec.  3.  Cases  where 
a  return  is  sought.  Possibility  that  a  lowered  return  will  .sometimes 
induce  larger  savings.  More  often,  lowered  return  cheeks  savin;;. 
The  conception  of  marginal  savers,  10  — Sec.  4.  Dia-ranis  express- 
ing the  equilibrium  of  supply  and  demand.  Savers'  surplus,  22  — 
Sec.  5.  The  steadiness  of  the  rate  of  interest  in  modern  times  and 
its  significance,  20  — Sec.  0.  Tlie  race  between  accumulation  and 
improvement,  27. 

CHAPTER  40 

InTERBST,    FnRTHER   CONSIDERED 20-43 

Section  1.  Loans  for  consuinplioii  introduce  no  new  principle  m 
to  deinaiid,  but  are  mueh  affected  hy  the  absence  of  full  conipetiilon, 
2i>  — Sec.  2.  Public  l)orn)vvin;;  for  w:iis  ,in  iuiportiiiit  form  of  such 
loans  in  modern  times,  32_Sec.  3.  Durabl,.  con.sumei',^  goods,  as 
a  form  of  investment,  again  introduce  no  new  priiieiple,  32  — See. 
4.  No  grounds  for  distinguishing  between  produe.T's  eaplial  and 
congumer's  capital,  no  far  as  interest  is  concerned.  Exchange  of 
present  for  future  the  moet  general  statement  of  the  cause  of  inter- 

V 


VI 


CONTENTS 


est,  36  — Sec.  5.  The  mechanism  of  banking  and  credit  makes 
interest  all-pervasive,  37  —  Sec.  6.  Variations  in  the  rate  of  in- 
terest in  different  countries  and  for  different  investmenta,  38  — 
Sec.  7.  The  jnatitication  and  social  signiticance  of  interest,  41. 


CHAl'TEU  41 

Overproduction  and  Overinvestment 44-64 

Section  1.  Overproduction,  in  the  sense  of  excess  beyond  the 
possibility  of  use,  is  impossible.  The  extensibility  of  wants,  44  — 
Sec.  2.  Overproduction,  in  the  sen-se  of  production  bevond  the 
stiise  of  prolit,  is  possible  if  investment  proceeds  unendingly.  The 
proce.ss  of  advances  to  laborers  and  the  readjustment  of  production 
under  tlie  supposed  conditions.  Check  to  the  extreme  result,  from 
the  icssation  of  accumulation.  The  reasoning  of  Rodbertus  criti- 
rizeil,  45  —  Sec.  3.  A  real  tendency  to  overproduction,  through 
overinvestment  in  die  familiar  industries,  50  —  Sec.  4.  Industries 
with  large  plant,  best  managed  under  continuity  of  operation,  are 
tempted  to  overproduction  or  el.se  to  combi'ialion,  62  —  Sec.  6. 
The  phenomena  of  crises  and  industrial  depression  are  in  reality 
different  from  those  of  overproduction,  53. 


CHAPTER  42 

Rent,  Aoricclture,  Land  Teni:re 56-76 

Section  1.  The  theory  of  surplus  produce  or  "  rent."  Rent  does 
not  enter  into  the  price-determining  expenses  of  production.  Rent 
is  not  tlie  spccitic  product  of  land,  55  —  Sec.  2.  The  existence  of 
rent  is  dependent  upon  diminishing  returns  from  land.  Advantages 
of  situation  as  affecting  rent,  .58  — Sec.  3.  Qualifications  of  the 
liriiiciple  of  diminishing  returns:  a  po-ssible  stage  of  increasing  re- 
turns ;  specific  plots  alone  to  be  considered  ;  'iven  stage  of  agri- 
cultural skill  a.ssumed,  »U  — Sec.  4.  The  stage  niien  the  tendency 
to  diminishing  returns  is  sharp,  rt4  — See.  6.  Are  there  original 
and  indestructible  powers  of  the  soil '.'  Predatory  cultivation  ;  inten- 
sive and  extensive  agriculture.  Inherent  differences  tend  to  be 
lessened,  but  do  not  disappear,  65  — Sec.  fl.  Land  tenure.  Cultl- 
v.itiiin  liy  owners,  each  with  moderate  holdings,  of  greatest  social 
advantage.  70  — Sec.  7.  Should  the  community  appropriate  or 
retain  for  itself  .igricultural  rent?  72. 


CHAI^TKR   43 

Urban  Site  Kent 76-01 

Section  1.  How  rent  arises  on  sites  for  retail  trading,  wholesale 
trading,  manufactures,  dwellings,  76  — Sec.  2.    The  principle  of 


1* 


CONTENTS 


Vil 


diminishing  returns  on  urban  sites ;  its  operation  less  steep  than 
for  agricultural  land,  80  — Sec.  3.  Site  rent  depends  upon  shrewd- 
ness in  utilization.  The  activity  of  real  estate  speculators,  83  — 
Sec.  4.  When  capital  is  sunk  irrevocably  in  the  soil,  there  is  dilfi- 
culty  in  separating  rent  from  return  on  capital.  How  far  ground 
rent  is  identical  with  economic  rent,  84  —  Sec.  5.  How  far  the 
activity  of  real  estate  dealers  and  speculators  is  productive,  87  — 
Sec.  a.  Urban  rent  is  somciinies  deliberately  createi! ;  is  it  then 
economic  rent  ?  80. 

CHAPTKR  44 

Rent  (concluded) 92-10»> 

Section  1.  The  rent  of  mines,  how  influenced  by  risk.  Dimin- 
ishing returns  on  mines.  02  —  Sec.  2.  Are  mining  royalties  rent? 
9(5  — Sec.  3.  The  selling  price  of  :\  site  is  a  capitalization  of  its 
rent,  ;)7  —  Sec.  4.  The  problem  of  appropriating  rent  for  the  pub- 
lie  is  presented  mo.st  sharply  by  urban  .sites.  The  possibility  of 
lea.«e.s  on  Ions  term  by  the  state;  the  historical  development  of 
un(iualilied  private  ownership  and  of  vested  rights.  !»S_Sec.  5. 
The  future  increase  of  rent  a  proper  oliject  of  ta.xatlon.  Modes 
of  levying  such  taxes,  102. 

CHAPTER  45 

MoMOPOLT  Gaiss 107-114 

Section  1.  Absolute  monopolies  ;  industrial  monopolies.  Patents 
and  copyrights  aa  instances  of  absolute  monopolies;  the  grounds 
for  creating  them  by  law,  107  —Sec.  2.  "  Public  service  "  monopo- 
lies. Increasing  returns  and  increasing  profits,  110— Sec.  3.  Com- 
binations and  "  Trusts" ;  the  uncertainty  a.s  to  the  extent  of  their 
monopoly  power,  112  — Sec.  4.  The  capitaliz.ition  of  monopoly 
gains  and  the  problems  a.s  to  vested  liiila,-;.  li;i. 


CHAPTER  4« 

Thb  Nature  and  Definition  of  Capital 11.5-123 

Section  1.  Is  the  distinction  between  interest  and  rent  tenable, 
in  view  of  the  wide  extent  of  differential  gains  of  a  monopoly  sort  ? 
Grounds  for  maintaining  that  all  returns  from  property  of  any  kind 
are  homogeneous,  115 —  Sec.  2.  A  different  conception  of  "rent" 
and  "  interest."  the  two  being  regarded  as  different  ways  of  stating 
the  same  sort  of  income.  "ArtlHcial"  and  "natural"  capital. 
How  measure  the  amount  of  capital  ?  117  — Sec.  -S.  The  important 
questions  are  on  the  effectiveness  of  competition,  the  existence  of 
a  normal  rate  of  interest,  the  justification  of  interest,  120. 


VUl 


CONTENTS 


CHAPTER  47 

DiFFERKNCKS  OF  WaOES.      SOCIAL  Stratificatiok 

Section  1.  Diflerencesof  wages  which  serve  to  equalize  aitraotive- 
neBSofdifleifntoccupatioiiK;  domestic  strvaiita,  university  teachers, 
publid  eiuployuus,  124  —  Sec.  2.   Irregularity  of  eiuploynient  and 

risk  in  their  effect  on  relative  wages.     Expense  of  training,  126 

Sec.  A.  Obstiicles  to  free  movement  bring  about  real  differences. 
Full  monopoly  rare,  127  —Sec.  4.  Kxpeiise  of  education  as  mn 
obstacle  to  mobility,  120— Sec.  5.  Ineijualities  of  inborn  gifts  and 
social  Ktratiticatlon.  riicertainty  of  oi  r  knowledge  concerning 
the  influence  of  inborn  gifts,  1.30— See.  0.  Noncompeting  groups, 
roughly  analyzed  a-sfive.  The  broad  division  between  soft-handed 
and  hard-handed  occupations,  1.34— Sec.  7.  Teiulcncy  u.  greater 
mobility  In  modern  times.  The  position  of  common  laborers,  138 
—  Sec.  8.  What  differences  in  wages  would  persist  if  all  choice 
were  free,  141  — Sec,  9.  Why  the  wages  of  nomen  are  low,  and 
wherein  the  labor  of  women  is  Ro^ially  advantageous,  142. 


TOt.  II 
PAOIS 

124-146 


CilAlTKU  48 

WaciKs  \m>  Valik 147-167 

Section  1.  "  Kxpenses  of  production  "  and  "  post  of  i)r.>ductlon  " 
again  considered.  If  there  were  perfect  freedom  of  ehoice  HUioiig 
laborers,  value  would  be  governed  by  cost,  IJ7  — Sec.  2.  There 
being  noncompeting  groups,  demand  (mai^iniil  utility)  governs 
lelative  wages.  How  this  principle  iippli.'s  to  a  grade  or  group; 
marginal  lndisi>ensiibility,  1 18  —  See.  3.  qualiflciitions  :  earnings 
may  bo  so  divergent  as  to  cause  se.page  from  one  group  into 
another  ;  the  stainlaid  of  living  may  iilTect  niitnljers  within  a  group, 
162  — Sec.  4.  The  lines  of  social  slratllieiMion  ari^  stable;  hence 
ihanpes  from  the  existing  adjustments  of  value  are  not  uwiully 
aff.cted  by  them,  l.ht  -Sec.  fi.  The  theory  of  international  trade 
brouiiht  into  barmiuiy  with  the  theory  of  value  umlir  noiu-ompeting 
groups,  i,'-,j__.sec.  t).  Analogies  Uftween  internaliimal  trade  and 
ilomestlc  trade,  liVl. 

(MlAnKU  40 
Hi  siNi'iM  I'mdfits 168-171 

Section  1.  Hiisliiiss  iirodt*  r.-st  on  (he  assuniptlon  of  risks.  IftH  — 
.See  ■>  Position  of  tile  biisliieMM  man  as  receiver  of  a  residiiid  in- 
come. Irn-tfuliiriiy  and  wide  range  of  this  Income,  Its  n>lRtlon  to 
prle(»,  Thouifh  irngular.  it  is  not  due  to  clianee.  Iftll  — Sec.  .'I,  Tim 
[•ftil  jiUyed  ii>  tiiliiirn  ftiiiiiiy  ;  that  played  by  oiiporliinlty,  environ- 
ment, training,  till  —Sec  4  The  .pmlllies  re.|ulslt.<  for  Huer<>Mi 
imagination,  judgment,  courage.     Mechsuical  talent  not  »o  itnpor- 


1 
i 


CONTENTS 


tant  H  might  be  expected.  Relations  of  the  business  man  to 
inventors.  DiTersity  of  qualities  among  the  successful,  1(}3  — 
See.  6.  A  process  of  natural  selection  among  business  men.  Natu- 
ral oapaoity  tells  more  than  in  most  occupations,  lUll  — Sec.  0. 
Motives  of  business  activity  and  money-making.  Social  ambition 
the  main  impulse;  other  motives  are  also  at  work,  107  — Sec.  7. 
What  changes  would  occur  if  business  ability  were  very  pleutiful 
and  capacity  for  muscular  labor  very  scarce,  170. 


IX 


CHAPTER  60 

BrsiKESS  Fbofits  (continued) 172-191 

Section  1.  Analogy  between  business  prnf.ts  and  rent.  A  similar 
analogy  in  other  occupations.  How  far  the  element  of  risk  vitiates 
the  analogy,  172  — Sec.  2.  The  difference  in  business  abilities  ex- 
plains differences  in  cost  of  production.  The  conception  of  the 
"representative  iirm"  .as  settling  normal  exiK-iises  of  production, 
175  —  Sec.  3.  One  of  the  inanitVslaiioiisof  business  ability  is  in  the 
selection  of  good  natural  resources.  In  the  end,  an  important 
difference  between  economic  rent  and  differential  business  prolits, 
177  —  .Sec.  4.  The  roiiiiection  betwi'en  the  return  on  capital  and 
business  profits.  Kelations  between  owners  and  nianagera  of  capi- 
tal at  different  times.  McKlem  tendency  toward  a  separation  of 
functions  and  rewards,  17»  — .See.  6.  For  considerable  periods, 
command  of  capital  brings  In  a  given  enterprlsH  the  probability  of 
larger  proflta  ;  hut  not  in  the  long  run  without  bui«iness  al)illty,  181 
—  Sec.  fl.  For  Industry  as  a  whole  and  capital  as  a  whole,  there  la 
a  connection  for  considerable  period.^  Wtween  interest  and  business 
proflta.  How  they  may  diverge  in  the  end,  183 —  .See.  7.  A  view 
of  biialnesa  protlts  which  diHtinguishes  them  sharply  from  wagea, 
aa  arising  solely  in  a  dynamic  state,  lK|_s<c.  8.  Another  view, 
which  laya  emphasis  on  risk,  and  distiiiKulslies  between  the  wagea 
of  aalarUHt  managers  and  the  "prollis"  of  indi pendent  busineas 
raeti.  The  salaried  manager  often  rewanle<l  de  fucto  In  proportion 
to  "proJitu,"  IH')  — .Sec.  11.  Kegiilmiiie  and  ilifgltlinate  buslneaa 
profits.  Their  reHiricilon  within  the  ligitiiimte  limits  liipeiident 
on  the  removal  of  monopoly  gains  uml  llio  inaliitenancu  of  a  high 
plane  of  coiu|H)tltlon,  IH7. 

CHArTKU  51 

Grkbmal  Waobs It>3-2fl8 

Secticm  1.  The  fundamental  i|iiestlon  as  to  general  wagea  Is  raised 
by  th*  rjyiti  n(  hired  Liborers.  \{>'i  ^-^  Hen.  'I.    'I'Uo  !!:!l!;!!>  !!::i!  !;tv!=h 

expenditure  creates  demand  for  labor  and  tnakes  waKes  high,  (^>n• 
aequenoi's  of  Invmlinent  as  compsred  with  "expenditure,''  \\>'i  — 
Sec.  ;i.  The  fallacy  of  "uaklng  work  "     Why  hired  Uborers  uiii- 


CONTENTS 


versally  desire  that  employment  should  bo  created  and  dislike 
labor-saving  appliances,  104  — Sec.  4.  The  theory  of  the  specific 
product  of  labor  as  determining  wages,  197  —  Sec.  5.  Wages  depend 
on  the  discounted  marginal  product  of  labor.  Explanation  of 
"margin"  and  of  "discount."  Advances  to  laboi«ts,  198  — 
Sec.  6.  Some  qualifications.  (1)  The  current  rate  of  interest  is 
assumed  to  be  settled  by  time  preference ;  otherwise  there  is  reason- 
ing in  a  circle.  (2)  A  broad  competitive  margin  is  assumed, 
otherwise  there  is  no  settlement  either  of  interest  or  of  wages,  200 
—  Sec.  7.  The  mechanism  of  advances  to  laborers,  the  flow  of  real 
income  into  their  hands,  the  reservoir  of  existing  supplies,  the 
replacement  of  what  is  advanced,  203  — Sec.  8.  With  the  increas- 
ing complexity  of  production,  interest  tends  to  be  a  larger  part, 
wages  a  smaller  part,  of  the  total  income  of  society,  206— Sec.  9. 
The  theory  of  general  wages,  thougb  it  seems  remote  from  the  prob- 
lems of  real  life,  is  of  high  importance  for  the  great  social  ques- 
tions, 207. 


CHAPTER  62 


POPCLATIOM 


.        •      209-226 

Section  1.  The  Malthusian  theory,  how  far  strengthened  by  bio- 
logical science,  2m»  —  Sec.  2.  The  maximum  birth  rate,  the  minimum 
death  rate,  the  consequent  posslbilitit's  of  multiplication.  In  what 
sense  there  is  a  tendency  to  rapid  multiplication  ;  the  positive  and 
preventive  checks,  210  — Sec.  8.  The  actual  birth  rates  and  death 
rates  of  some  countries  in  modern  times.  A  high  birth  rate 
ordinarily  entails  a  high  death  rate.  Explanation  of  exceptions. 
The  situation  In  the  United  Sutes,  214  — Sec.  4.  Does  a  high  birth 
rate  cauiie  low  wages,  or  vicf  versa  f  Interaction  of  causes.  A 
limitation  of  numbers  not  a  cause,  but  a  condition,  of  general  pros- 
perity and  high  wages,  220  — Sec.  6.  The  standard  of  living  affects 
wages,  not  directly,  but  throuKli  iu  Influence  on  numbers.  Fallacies 
on  this  subject,  221  —Sec.  6.  Mode  in  which  .v  modern  de«line  In 
the  birth  rate  has  uken  place,  228. 


illAI'TER  68 

PoHaATioM  (rontinurd) 830-887 

Section  1  Differences  between  social  straiH  In  birth  rates,  and 
their  relation  to  varying  stnmlanls  of  IIvIuk,  226  —  Sec.  2.  The 
main  ususe  of  the  general  leiidency  to  lower  birth  riite  Is  Moclal 
ambition.  Iu  tounectlon  with  private  pmperty  and  IndlviduallNm 
liiURlratiar.  from  native-lmrn  aii<i  UuiniKiaiilH  in  tin-  riii«ui  Slat«s. 
280- Sec.  .1,  Islhepreventlvoclicck  l)«>lnKo«rrl(Ml  toofar  y  Kugen- 
li'H  and  race  miloldc  2.'U. 


CONTENTS 


XI 


CHAPTER  64 


Ikbqcjality  akd  its  Causrs 

Section  1.    The  fact  of  ine(iuality :    distribution  has  a  roiiehly 
pyramidal  form.     Figures  indicating  the  distribution  of  income 
for  PruHsia,  for  Great  Britain,  for  London,  238 -Sec.  2    The  dis- 
tribution of  property,  as  indicated  by  probates  in  Great  Britain 
by  tax  statistics  in  Prussia,  ?4:i-Sec.  3.  How  far  it  appears  thai 
inequality  is  becoming  greater.     Dearth  of  information  riKanling 
distribution  in  the  United  States,  24C  -  Sec.  4.    The  ca.ises  of 
mequahty  :    differences  in  inborn  gifts  ;    the  maintenance  of  ac- 
quired advantages,  through  opportunity  and,  above  all,  through 
inheritance.  240 -Sec.  5.  Inheritance  to  be  justified  as  essential 
for  the  maintenance  of  capital  under  a  system  of  private  pn.,«rty. 
l-OBSible  hmitetions  of  inheritance,  through  taxation  and  in  other 
ways,  248 -Sec.  6.  The  grounds  on  *hich  private  property  rests 
The  utilitarian  reasoning:    diflerences  in  inborn  gift*,  accumu- 
lation,  inheritance.     The  leisura  class;    its  economic  and  moral 
position.  251  _  .Sec.  7.    Whatever  the  eventual  changes,  private 
property,  inc,|uality,  and  the  leisure  class,  will  long  endure,  255. 
KiriiHBNOBS  ON  Book  V 


▼01.  II 

rAi.18 
288-266 


267 


BOOK    VI 

PROBLEMS  OF  LABOR 

CHAP-'EH  56 


TilAnK-I'vlOKH 

Section  1.  introductory.   Charu.  tor  of  il,,.  qu.-stiims  in  this  book 
they  Involve  the  weighing  of  cc)i,rt,eiln«  considerations,  and  are 
affected  by  social  sympathy.  2(11 .-  Sec.  2.    Bargaining  power  ..f 
Inliorers  strengthened  by  unions.     Weakness  of  the  single  Uhcrer 
Immobility  of  labor;  lack  of  reserve  funds;  periHl.abiliiy,  21)2 - 
Sec,  8.   Mono|)ol|silc  tendencies  of  tnulo-unions  of  skilled  w.,rker« 
n..t  often  of  permanent  importan.e.    The  ojicn  union,  such  as  alone 

.•Ml  develop  among  the  less  sk I,  a  potent  instrument  for  m^\ 

m-Ufc.  4.  Closed  shop  or  open  shop  7  A  strong  caae  prim,, 
fmif  for  the  closed  shop  with  the  >pen  union,  2(19  -  Sec.  6  The 
danger  of  a  check  to  proRresK  ,»nd  efdrleney  under  the  closed  shop 
I-imitat.on  of  output ;  pleee  work  ;  .he  standard  rat«  ;  labor-savlna 
appliances  ;  discipline,  271  -  Sec.  .1.  A  division  between  open  shop 
and  rlose.l  shop  not  un«!cepuble.    Grouiuts  of  employen.'  opposition 

lliu  tie-up,  271»-Seo.  8,  The  unionist  movement  likely  to  eitend 
and  entitled  to  sympathy,  2H2. 


-2N 


i 


xii 


CONTENTS 


CHAPTER  M 


Labob  Legislation 

Section  1.  Labor  legislation,  like  labor  organization,  aitna  to 
standardize  conditions  of  employment.  Legislation  on  the  houn 
of  labor  for  women  and  children  tlie  typical  case.  Other  sorta  of 
restriction.  Situation  in  ti""  United  States,  286  — Sec.  2.  Why 
legislation  must  supplement  •,  A  support  the  laborers'  own  efforts. 
A  great  moving  force  behind  it  is  the  growth  of  altruism,  280  — 
Sec.  3.  Limitation  of  hours  for  men  comparatively  rare.  Arc  there 
grounds  on  principle  for  confining  such  legislation  to  women  and 
children  ?  Constitutional  questions  in  the  United  States,  201  — 
Sec.  4.  The  demand  for  an  eight-hour  day  deserves  support.  Intro- 
duced suddenly  and  universally,  the  eight-hour  day  would  mean  a 
decline  in  product  and  in  wages ;  introduced  gradually,  and  part 
pa$»u  with  improvements  in  production,  it  brings  unmixed  gain, 
208  —  Sec.  5.  Minimum  wages  introduce  no  new  principle,  but 
present  the  problem  how  to  deal  with  the  unemployable,  207. 


vol.  It 
rAon 

S86-80a 


CHAPTER  57 

Some  Agencies  for  Indi'STRial  Prack 30&-822 

Section  1.  Profit  Khariiig  affccU  profits  as  the  residual  element. 
Some  modes  of  applying  it.  Immediate  and  deferred  participation, 
,S03— Sec.  2.  Profit  sharing  will  not  be  widely  applied  unless  it 
pays,  by  increasing  eflicieiicy.  Uncertain  connection  between 
profits  and  workmen's  efflciency.  Importance  of  the  employer's 
personiility,  3(X1  —  Sic  3.  Other  methods  of  linking  employee  to 
employtr:  "  gaiiislmring"  and  "welfare"  arrangement*,  800  — 
Sec.  J.  The  sliding  scale,  applicable  where  product  is  homogeneous. 
Not  In  harmony  with  the  general  principle  of  employer's  assumption 
of  industrial  ri.sks,  yet  often  helpful  toward  avoiding  friction  and 
disputo,  .'JU  — Sec.  &.  Arbitration,  private  an  1  public.  Not  appli- 
cable where  such  matters  as  recognition  of  union  or  the  closed  siiop 
are  in  (li:iputc  ;  but  iippliciiblu  to  <iuestious  of  wages  and  the  like. 
Private  boards  imply  Iraile  a;;rreinents  and  organized  unions. 
Public  boards  are  usually  boanU  of  conciliation,  but  none  the  less 
helpful,  313  — Sec.  )l.  Compulsory  arbitration,  carried  to  its  logical 
outcome,  means  Kettle  .'ent  of  all  dlKtrlbutlon  by  public  authority, 
mill  may  )>e  the  enter,  n  weili;e  to  socialism.  Possibility  that  it 
will  remain  indetinitely  ,  a  halfway  stago  and  not  proceed  to  this 
outcome,  .'<lt)  —  !'ec.  7.  ('(..iipulsory  arbilration  In  the  limited  rango 
of  "public  service"  iniluxirieM  presents  uo  sutih  dasp-reachlng 
(luestions,  and  ought  to  be  applied,  32U. 


i 


M 


.1 


4 


CONTENTS 

CHAPTER   58 


••• 

nu 


VOL.  11 
PAGES 

Poor  Laws 823-345 


Workiibn's  ImcRAircE. 

Section  1.  Irregularity  of  earnings  and  ita  causes,  323 Sec.  2. 

Provision  against  accident  Is  feasible  tlirough  insurance.  The 
German  system,  the  Kn^lish,  the  French.  The  charRes,  though 
levied  on  the  employer,  are  likely  to  come  ultimately  out  of  wage's, 
323  — Sec.  S.  Insurance  against  sickness  no  less  feasible.  The 
Friendly  Societies,  the  German  system  of  compulsory  insurance. 
The  possibility  of  mal'ngering  and  the  need  of  supervision,  328  — 
Sec.  4.  Old-age  pensions  in  European  countries  and  in  Australia. 
Are  they  deterrents  to  thrift  ?  The  pecuniary  difficulties  not  in- 
superable, 331— Sec.  5.  Chaotic  situation  In  the  United  States  as 
to  accidenta  ;  the  urgent  need  of  reform,  through  some  sort  of  uni- 
venial  compensation.  The  political  difficulties  in  the  way  of  this 
reform  and  others,  3.14  —  Sec.  ft.  irnemployment,  though  it  tend.s  to 
correct  ilst'f,  is  a  continuing  phenomenon.  nilHcnlties  of  applying 
any  method  of  insurance;  the  crucial  difficulty,  of  encouraging 
idleness.  PoHsibllity  of  supplementing  trade-union  out-of-work 
beneliu.  Relief  works,  3;J7-«ec.  7.  Poor  laws:  the  conflict 
between  sympathy  and  ciiution.  Relief  may  he  liberal  where  no 
danger  of  demoralization  exists.  For  the  able-bodied,  it  needs  to 
be  adminintered  with  tlie  utmost  caution,  342. 

CHAPTER   60 
C00P«.*TI0K 3^^5„ 

Section  1.  Codperation  attempt  to  di.speimo  with  the  business 
man.  Its  varioug  forms,  34.|-8ec.  2.  Co.iperation  in  retail  trad- 
ing,  when  done  by  the  well-to-do.  of  no  social  signiticance.  When 
done  by  workingmen,  aa  in  Great  Hritain,  it  has  larger  effects. 
Metho<lg  of  the  worklngmen'i,  stores  and  causes  of  their  miccew 
The  movement  elsewhere.  .347  -.See.  3.  Credit  cooperation  In  (Jer 
many;  its  methods  and  rcMulis.  other  sorts  of  societies,  and 
development  in  other  countries,  3f.2-Sec.  4.  Cooperation  in  pro- 
duction  would  most  alTect  the  social  structure,  but  has  had  the 
Uwt  development,  Caus,.s  of  failure  ;  the  rarity  of  the  husinew 
qualities,  and  the  limitations  of  workingmen.  The  future  of  co- 
operation. 366. 

RirtMiicEs  ON  Book  VI 860-aOO 

HOOK    VII 
PROBLSMS  OF  KHOSOMW  OROANlZATIOff 

CHAPTER  60 

Rmlwa?  Pko„x,km« 3„3^g, 

i!!!f!!.""  ••_"a"«'ft.vs  an  limtrum.mt  for  furthering  the  geogr.iphical 
<-'"''""»ry  'n>m  thU  that  they  are  not  to  the 


division  of  labor. 


i 


XIV 


CONTENTS 


▼OL.  II 


public  interest  unless  they  pay,  363 -Sec.  2.  Economic  characler- 
istics  of  railways  ;  first,  the  great  plant.     Consequent  tendency  to 
decreasing  cost.     Hence  also  frequency  of  rapid  transition  from 
financial  failure  to  financial  success,  366  -Sec.  S    Second,  the  ele- 
ment of  joint  cost,  both  as  to  fixed  charges  and  operating  expenses. 
Charging  what  the  traffic  will  bear ;  classification  of  freight.  36!t- 
Sec    4.   Justification  of  charging  wliat  the  traffic  will  bear  lies  in 
full  utilization  of  the  railway  equipment,  372  — Sec.  6.  The  pecul 
iar  severity  of  railway  competition  explained  by  joint  cost.    How 
far  lower  competitive  rates  on  long  hauls  are  justified,  373  -  Sec.  6 
Other  consequences  of  joint  cost :  flexibility  of  rates,  and  difficulty 
of  deciding  what  is  a  reasonable  rate,  375 -Sec.  7.  Ch.iotic  rates 
in  the  United  States,  and  concession  to  favored  shippers,  partly 
corrupt,  partly  the  result  of  competition,  376- Sec.  8.  "  Rebates' 
and  the  grounds  for  prohibiting  them.     Rale  agreemenU  and  pools 
as  aids  in  preventing  discriminations.     Inconsistency  of  our  legisla- 
tion on  rebates  and  rate  agreemenU,  379. 


CHAPTER  61 

Railway  Problems  {continued) '" 

Section  1  Effects  of  railways  on  distriliullon.  An  unearned 
Increment  analogous  to  rising  rent  of  land.  382  -Hoc.  2.  Tendency 
toward  concentration  of  ownmhip ;  how  promoted  by  American 
methods  of  corporate  organization.  Overcapitaliaition  and  iu  con- 
sequences, 384  — Sec.  3.  vStoclt  speculation,  stimulated  by  over- 
capital  itatlon,  has  facilitated  acquisition  of  control  by  the  "great 
operato:»,"  388 -Sec.  4.  "  Inside  management  "  and  iu  evils,  300 

—  Sec  f.    What  benefits  have  come  from  private  ownership  in  the 
United  States,  and  how  far  railway  fortunes  have  been  earned,  391 

—  Sec.  6.   Increasing  tendency  to  monopoly,  and  need  of  public 
control  over  rates,  31»4. 

CHAPTER  02 

PuBLif  OwNKMiiiP  Ann  PiinLic  ('ontroi 897-418 

Secti.m  1.  What  are  "pul.lic  service"  induslrii-H?  The  legal 
conception  less  Important  than  the  ..connmic  ;  the  essenllal  earmark 
Is  monoimly,  ;il»7  -Sec.  2.  The  spur  of  profit  necessary  for  Im- 
provements in  the  arts ;  hence  a  pr.liminary  stage  of  private 
ownership  is  ineviial.U'.  401  -S.^c.  3.  The  .luestion  of  vested  rights 
when  public  ownership  dlnplacos  private.  "Franchises"  should 
always  be  for  limited  terms.  I'urcham'  at  market  value,  40;l- 
8ec  4  Are  there  criteria  marking  w.me  indai.tri«B  m  suiublo  fof 
public  management  ?  The  tesU  suggested  i.y  Jevons  ;  distrust  of 
public  officials  underlies  them  aU,  40fi-8e«.  6.  To  secure  trusW 


d 


CONTENTS 


XV 


1 


worthy  and  efficient  public  officials  is  partly  a  problem  of  political 
machinery.  Some  difficulties  of  public  management,  as  regards 
the  employment  of  labor  and  the  maintenance  of  progress,  40"  — 
Sec.  6.  The  fundamental  requisite  in  a  democracy  \<i  a  generally 
high  level  of  character  and  intelligence.  In  what  way  corruption 
is  connected  with  monopoly  industries,  409 — Sec.  7.  The  future 
of  democracy  depends  on  its  success  in  dealing  witli  these  indus- 
tries. Experiments  in  ownership  to  be  welcomed,  especially  in 
municipalities.  The  prejudices  of  the  business  class  on  this  matter, 
411 —Sec.  8.  Public  regulation  the  only  alternative  to  public 
ownership.  Tlie  two  types  of  regulating  boards.  Publicity  as  a 
means  of  supervision.  Overcapitalization.  The  essential  object 
is  to  limit  prices  and  profits.  The  elevation  of  the  standards  of 
private  management.  Supervised  quasi-public  management  only 
a  halfway  stage  ?  41.3. 

CHAPl'ER  63 

COMBINATIONg    AND   Tri'sts 419-442 

Section  1.  Combinations  in  restraint  of  trade  and  the  common 
law  rule  making  them  void.  Surprising  effectiveness  of  this  rule, 
419 —  See.  2.  Modern  forms  of  combination  in  llie  United  States  : 
the  "trust,"  the  holding  company,  the  unilied  corporation.  The 
Kartel  in  Germany.  The  fact  of  monopoly,  not  the  form  of  com- 
bination, the  important  thing,  420  — Sec.  3.  The  permanency  of 
combination  as  affected  ( 1)  by  the  economies  of  large-scale  manage- 
ment; (2)  the  devices  of  "unfair"  competition, — railway  favors, 
discriminations  in  prices,  factor's  agreements,  advertising  devices. 
The  effective  defense  against  "unfair"  competition  is  not  from 
legislation  so  much  as  from  large-scale  ctmipetition,  424  —  Sec.  4. 
Will  large-scale  competition  persist  ?  The  pressure  from  constant 
accunuilsition  of  fresh  capital.  Potential  competition,  and  the 
possible  emergence  of  foresighted  management  tinctured  by  a  sense 
of  public  re«i>on8iblllty,  480— Sec.  5.  The  possible  public  advan- 
tages of  combination  lie  in  the  mitigation  of  industrial  fluctuations. 
The  supposed  ruinous  effect  of  compotiiion  to  be  judged  from  this 
jwlnt  of  view,  4.'t8  —  Sec.  tl.  Hepresslve  legislation  has  failed.  Fed- 
eral regulation  called  ior  on  publicity,  capitalisation,  eventually 
IMTliaps  on  profits  and  prices,  437  —Sec.  7.  Wlint  are  the  earmarks 
of  efleitlve  monopoly  ?  Size,  profits,  discriniinnting  prices  ?  The 
inevitably  uncertain  character  of  our  conclusions,  440. 


('nAl*TKU  04 


■>m;i*i.i-<it 


443-».V:» 


Section  1.    Proposals  for  large-scale  Huclallsm  have  saperseded 
thoM  for  isolated  communism.    The  essence  of  socialism  is  economic 


XVI 


CONTENTS 


1 


transformation  ;  changes  in  religion,  the  family,  political  Inatitu- 
tlons,  are  not  essential  to  Its  program.  Nor  is  violent  change 
essential,  443  — Sec.  2.  Land  and  capital  to  be  in  public  hands; 
not  necessarily  public  property  in  every  instance.  The  peculiar 
problem  ae  to  agricultural  land.  Wages  to  be  the  only  form  of 
income.  Exchange  and  money  in  tlie  socialist  state,  446  —  Sec.  3. 
Three  ci>nceivable  principles  of  distribution  :  need,  sacrifice,  effi- 
ciency, 449  —  Sec.  4.  How  far  public  ownersliip,  as  adopted  In 
present  society,  is  socialistic  ;  how  far  labor  legi.slation  and  the 
like  are  so,  464  —  Sec.  5.  Some  current  objections  to  socialism  are 
of  little  weiglit ;  for  example,  that  the  huge  organization  is  imprac- 
ticable, that  gooils  could  not  be  valued,  that  capital  could  not  be 
accumulated.     W  ould  freedom  disappear  ?  450. 

CHAPTER    05 

Socialism  (^rontiiiued) 400-478 

Section  1.  The  family  and  the  problem  of  population  under 
socialism.  The  Maltliusiau  dithcuity  a  real  one,  4(iO  — Sec.  '2. 
Vigor  and  efficiency  among  the  rank  and  file.  The  absence  of 
the  power  of  discharge.  Tlie  irksomeuess  of  labor,  402  —  Sec.  3. 
I/eaderaliip  and  tlic  ways  of  securing  it.  The  love  of  distinction  ; 
can  it  be  satisfied  by  the  laurel  wreatli  ?  Mixture  of  higher  and 
lower  aspects  in  the  love  of  distinction.  The  possible  growth  of 
altruism,  404  —  Sec.  4.  Tlie  selection  of  leaders  in  a  socialist  state. 
Genius  and  originality  likely  to  be  deadened,  400  —  Sec.  6.  Mate- 
rial progress  through  the  improvement  of  capital  likely  tt)  be 
checked.  Is  a  change  in  distribution  alone  now  needed  ;  can  ad- 
vance in  production  be  neglected?  408  — S.c.  0.  The  problem  is 
essentially  one  of  motive  and  character.  Huiiian  nature  and  ideals 
of  emulation  and  distinction  are  subject  to  change.  Thougli  social- 
ism anil  current  moviinenta  of  nform  rest  on  the  same  force,  the 
difference  in  degree  i.s  vast,  470  — Sec.  7.  Is  socialism  to  be  the 
ultimate  outcoini'  of  social  evolution  ?  The  materialistic  interpre- 
tation of  lii.story  and  its  propliecies.  The  certainty  that  change 
will  be  irradual  and  the  Impossibility  of  foreseeing  how  far  it  will 
finally  go,  473. 

Rgferencf.s  ok  Book  VII 478-470 


BOOK    VIII 
7VI.V.I/70.V 

CHAl'TKR  00 
80MB  PiiiNc;   i.r.x  iNDKiiLviNo    Taw  HON       .....       48;»-4i)6 
Section  1.  The  esneiitial  nature  of  taxation  :   no  quid  pro  -/«"■ 
Taxes  a  sign  of  wider  consolousues i  of  common  Interest,  48a  — 


!i:'3i)-Vf' 


CONTENTS 


xvu 


Sec.  2.  Proportional  or  progressive  taxation  ?  This  question  of 
justice  inextricably  connected  witli  the  general  question  of  social 
justice  and  the  righteousness  of  inequalitie.-)  in  wealth.  "  Ability  " 
and  "equality  of  sacrifice"  are  inconclusive  principles,  486— 
Sec.  3.  Should  funded  incomes  be  taxed  at  higher  rates  tlian  un- 
funded ?  400  —  Sec.  4.  Can  uxes  be  made  higher  according  to  the 
source  or  nature  of  the  income  ?  492  -Sec.  5.  Progressive  taxation 
of  interest,  on  the  principle  of  taxing  saver's  rent,  494. 


PIOIS 


CHAPTER  67 

Incomb  and  Ikiieritamcb  Taxes 497-614 

Section  1.  Income  taxes  present  the  problem  of  progression 
sharply ;  yet  should  be  considere.l  in  connection  with  other  taxes, 
497  — Sec.  2.  Income  taxes  limited  as  a  rule  to  the  well-to-do' 
classes.  The  exemption  of  small  incomes  rests  partly  on  social 
grounds,  partly  on  administrative  expediency,  498  —  Sec.  3.  The 
British  income  tax  an(i  the  device  of  stoppage  at  the  source.  Dec- 
laratio.is  of  a  taxpayer's  entire  income  rarely  required.  Tlie  system 
not  cor,.si9tent  with  prnn;res8ion,5()0-Sec.  4.  The  Prussian  income 
tax  as  a  type  of  projiiossive  ta.xation  on  entire  income.  Declara- 
tion necessary.  Cnditioiis  necessary  for  the  effective  administra- 
tion of  Kuch  a  tax.  506-  Sec.  6.  Inheritance  taxes  are  comparatively 
easy  of  enforcement,  and  lend  themselves  readily  to  progression 
Carried  too  far.  they  check  accumulation  and  the  increase  of  capi- 
tal, 607  —  Sec.  0.  Some  further  con.siderations  on  inhentanco  and 
income  taxes,  610- Sec.  7.  The  income  tax  question  in  the  United 
States.  'Ihe  constitutional  questions  involved.  The  attitude  of 
the  well-to-do  classes,  512. 


CHAPTER  68 

Taxbs  on  Land  ani>  BriLDiNos 616-627 

Section  1.  Taxes  on  land  {f.g.  .m  urban  site)  rest  definitively  on 
the  owner,  and  operate  to  lessen  e.'onomic  rent  by  so  much,  515  — 
Sec.  2.  Taxes  on  building.s  tend  to  be  .shifted  to  the  occupier 
tiuahlicalions  and  limitutions  of  this  propo,sition,  olS  — Sec  3 
Kffectoof  taxes  on  real  property, -hind  and  buildings  combined! 
621  — Sec.  4.  In  the  long  run,  it  makes  no  difference  in  the  inci- 
dence of  sueh  tax.s  whether  th.y  are  first  in.i".se,l  ,.n  owner  or 
tenant  ;  but  f,ir  short  periods,  it  does.  Siiuilarly.  it  is  In  the  main 
of  no  concern  whether  the  a«8e.s.smenl  be  on  rental  or  on  capital  value- 
though  in  some  respects  the  two  nu-thods  brinir  different  n.^ulta' 
u22-Sec  0.  concealed  taxation  of  worklngmen  through  taxes  on 
their  dwelhngs.  525 —Sec.  0.  Taxes  on  real  property  should  bs 
primarily  local  taxes,  520. 


XVIU 


CONTENTS 


TOL.  n 

rAon 


CHAPTER  69 

The  General  Property  Tax 628-649 

Section  1.  The  general  property  tax  works  Bufficiently  well  under 
simple  industrial  conditions,  628  —  Sec.  2.  In  complex  modem  com- 
munities it  is  impracticable.  Many  incomes  arise  which  do  not 
rest  on  property  ;  many  forms  of  property  are  not  readily  reached  ; 
the  development  of  debts  and  credits,  of  corporate  organization, 
causes  dilficulties,  f)2«  — Sec.  3.  The  rate  of  taxation  important. 
Its  influence  in  the  case  of  securities.  Complete  breakdown  of  the 
system  as  to  these,  5.S2  — Sec.  4.  The  taxation  of  corporations  and 
of  corporate  securities.  "  Double  taxation  "  of  stocks  and  bonds. 
A  method  a  ;alogous  to  stoppage  at  the  source  should  be  applied. 
I^iflBculties  of  apportionment  between  conflicting  jurisdictions,  58« 
—  Sec.  5.  Mortgages  and  mortgage  notes  present  similar  problems, 
640  —  Sec.  6.  Public  securities  present  especial  difficulties  for  a 
property-tax  system.  Is  It  expedient  to  exempt  them  from  taxa- 
tion? 543  — Sec.  7.  The  possibility  of  a  federal  Income  Ux,  col- 
lected by  stoppage  at  the  source ;  and  the  possibilities  of  reform 
in  American  taxation,  644  — Sec.  8.  A  question  of  principle  :  how 
far  can  the  taxation  of  income-yielding  property  be  carried  without 
checking  accumulation  ?  647. 


CHAPTER  70 

Taxes  oh  Commodities 660-68C 

Section  1.  Direct  and  indirect  taxes.  Various  ways  in  which 
"indirect"  taxes  are  levied  on  commodities,  660  — Sec.  2.  In  the 
simplest  case,  of  a  competitive  commodity  produced  under  constant 
returns,  a  tax  tends  to  be  shifted  to  consumers.  Explanation  and 
qualification  of  this  principle,  r>.')l  —  Sec.  3.  Complexities  where  the 
commodity  is  produced  under  increasing  or  diminishing  returns ; 
where  there  is  monopoly.  Cautions  to  be  observed  in  the  applica- 
tion of  theoretic  reasoning  on  these  topics,  663  —  Sec.  4.  Taxes  on 
imports  present  no  peculiarities,  except  oh  thty  bring  a  rival  un- 
taxed supply  and  thus  raise  the  que^^tions  concerning  protection, 
fi67  —  Sec.  6.  Taxes  on  commoditie.s  are  little  noticed  by  con- 
sumers. They  are  commonly  on  articles  of  large  consumption, 
and  regressive  in  their  pffpclH.  A  large  and  varied  list  of  articles 
is  most  easily  reached  by  customs  duties,  667. 

Kkkerencbs  oh  Boob  VIII 661 


BOOK   V 
THE  DISTRIBUTE     '  OF  WEALTH 


I 


CHAPTER  38 

Interest  on  Capital  used  in  Production.    The  Condi- 
tions OF  Demand 

§  1.  The  word  distribution,  in  the  sense  commonly  attached 
to  it  in  economic  writings,  refers  to  the  apportionment  of  the 
income  of  a  community  among  its  several  classes  and  members. 
Wherever  industrial  development  is  in  any  degree  advanced, 
there  are  owners  of  capital  and  of  land ;  there  are  persons  using 
land  and  capital,  who  yet  are  not  the  owners,  —  tenants  and 
borrowers;  there  are  all  sorts  of  workers,  ranging  in  earnings 
and  in  social  position  from  the  poorly  paid  day  laI>orer  to  the 
prosperous  professional  man  and  salaried  manager.  What 
share  goes  to  a  person  who  simply  possesses  capital  or  land, 
and  what  share  goes  to  an  individual  for  his  labor,  of  whatever 
sort,  —  these  are  among  the  central  problems  of  distribution. 
A  common  division  of  the  subject  is  into  four  heads,  corre- 
sponding to  four  groups  in  the  community  whose  income  is 
supposed  to  bo  governed  by  difTorcnt  causes :  capitalists,  land- 
owners, laborers,  and  finally,  business  men  or  active  managers 
of  industrial  afTairs  The  capitalists  are  said  to  receive  interest, 
the  landowners  rent,  the  laborers  wages,  and  the  business 
men  profits  or  earnings  of  management.  We  need  not  now 
consider  how  far  this  classification  is  satisfactory;  it  suffices 
to  indicate  the  nature  of  the  new  subject  on  which  we  now 
enter. 

Neither  is  it  necessary  to  explain  in  advance  why  one  or 
another  of  these  -lubjf^cts  should  be  selortod  for  first  consirlcra- 
tion.  They  are  closely  connected,  and  no  full  un  -rstanding 
of  anyone  can  be  had  unfi!  f!u'  ntbors  :\U:t  ha-'i'  boon  examined. 
We  shall  begin  by  considering  interest,  -  that  share  which 
goes  to  the  owner  of  capital. 

3 


4  THE  DISTRIBUTION  OF  WEALTH 

Let  it  be  recalled  that  by  capital  we  mean  concrete  instru- 
ments made  by  man.  Land,  and  like  agents  provided  by 
aature  without  application  of  labor,  are  excluded  from  the 
present  discussion  of  capital.  And  among  instruments  made 
by  man,  those  made  with  a  view  to  ulterior  use  m  further 
pmluction- producer's  capital  -  will  be  first  and  mamly 
considerod,  consumer's  capital  being  also  reserved  for  sep- 
arate treatment. 

§  2    The  essential  problem  concerning  interest  can  be  stated 
in  simple  terms.     Why  should  an  individual  who  borrows  from 
another  a  given  quantity  of  commo.lities  -  represents,  m  any 
except  pri.aitive  communities,  by  a  given  quantity  of  money 
-engage  to  return,  after  a  fixe<l  time  ha.s  elapsed,  not  only 
what  he  ha.s  borrowed,  but  something  in  addition?    That  the 
amount  borrowed  should  be  returned,  seems  sutfic.ently  ea.sy 
of  explanation.     But  why  can  the  U-n.ler  get  the  prenuum  also  ? 
That  premium,  as  is  familiar  enough,  usually  is  expressed  m 
terms  of  a  percentage  iKvid  each  year.     The  borrower  engages 
to  pay  back,  not  only  the  principal,  but  five  i)er  cut  or  there- 
abouts in  addition  for  each  year  that  elapses,  and  a  propor- 
tional percentag.-  for  each  fraction  of  u  year.     To  ..scortam 
why  this  a.l.r.ti(.nal  percentage  is  paid,  is  to  solve  th.«  problem  of 

interest.  , 

The  fact  that  the  transaction  in  modern  .•onmmniti.«s  takes 
the  form  of  a  loan  of  money  un.l  a  repayment  of  money  with 
luten-st.  has  often  led  to  th.'  notion  that  it  is  peculiarly  con- 
nected with  mon.v  and  arisos  from  th.-  nature  and  functums 
of  money.     Tsually  this  n..ti,m  takes  the  form  ..f  reasoning,  m 
a  circle."    IV..ple  are    familiar  with  the  everyday  pra.'tis(>  of 
lending  at  int-rest  ;   they  say  that  numey  is  "worth"  so  nnich, 
n.eaning  that  it  can  be  lent  at  some  annual  rate;    an. I  they 
argue  that  the  borrower  must  pay  this  ratr  in  order  to  get  tho 
money      What  more  simpl.<?    Or  they  say  vaguely,  with  Sliy- 
\neV,  that  mon.-v  "breeds"  int.-irst  ;  which  again  is  a  statement 
of  the   probl-m,   no  solution.     A   lilH.'   rrtlectum  shows  that, 
here  »«  elsewhere,   noney  8i>rves  simply  a«  the  medium  of  ex- 


THE  CONDITIONS  OF  DEMAND  6 

change.  What  the  borrower  wants  is  not  the  money  itself, 
but  that  command  over  commodities  and  services  which  money 
gives.  He  wishes  to  buy  commodities,  either  for  his  own  m- 
mediate  use,  or  for  use  in  operations  of  production ;  and  in  the 
latter  case  (the  one  to  which  the  present  discussion  is  more 
particularly  directed)  he  wishes  to  procure  machines,  materials, 
and  the  means  for  paying  lul)orers  whom  he  hires.  .\n«l  when 
he  returns  the  money,  plus  the  premium,  he  gives  l)ack  to  the 
lender  the  ;ame  command  over  commodities  which  he  had 
recei'.ed,  and  something  in  addition ,  he  gives  back  more  com- 
modities than  had  been  h'nt  him.  If  there  were  no  such  thing 
as  money,  the  same  sort  of  transactions  wouM  take  place ; 
precisely  as,  given  the  division  of  labor,  the  exchange  oi  dif- 
ferent sorts  of  conuiKxlities  would  take  place  imder  barter  in 
fundamentally  the  same  way  as  with  the  use  of  a  medium  of 
exchange.  Under  barter  both  transactions  obviously  would 
he  managed  with  much  greater  difficulty.  The  medium 
of  exchange  makes  l)orrowing  easier,  as  it  makes  exchange 
easier;  and  it  makes  ])nssiblr  much  borrowing  and  much  ex- 
changing which  otherwise  would  be  impracticalile.  The  ex- 
planation, however,  of  both  sets  of  phenomena  is  not  to  be 
found  in  the  use  of  money,  i)ut  in  the  nature  of  the  operations 
which  it  facilitates. 

We  may  brush  aside,  not  cmly  the  notion  that  interest  anses 
from  the  use  of  money,  l)ut  that  the  rate  of  interest  depemls  on 
the  (juantity  of  money.  More  money  makes  higher  prick  s, 
not  lower  interest.  The  connection  wliich  does  exist  between 
the  rate  <if  Ixink  discount  and  tlie  (juantity  of  money  held  by 
banks  ha>  been  sufficieiitly  exi)l!iine<l ;  '  this  l)ank  rate  oscillates 
above  and  lielow  wiiat  may  Ix'  called  the  true  rate  of  interest, 

-the  return  on  steady  invest nieiils.  In  the  exposition  which 
follows,  tills  essrntiiil  rate  of  interest  will  be  had  in   mind. 

§  ;<.  Interest,  then,  appears  as  the  resi.it  of  an  act  of  ex- 
cliange  liy  which  a  quantity  of  moni'y  (or  commodities^  now 
in  h;w.\  iw  ffivi!!   for  «  irrcjiter  (jiiasstity  <>(  sssMney   '■■■^r  ■■•■■■■'■•■)- 

■  Bouk  III.  Chftptrr  M.  pi|«M'ially  |  i. 


ff 


6 


THE  DISTRIBUTION  OF  WEALTH 


modities)  to  be  returned  in  the  future.  The  excesa  or  surplus 
thus  emerging  seems  to  be  got  for  nothing ;  there  is  no  obvious 
equivalent  for  the  premium  or  interest.  Yet  an  exchange  of 
something  for  nothing  is  not  to  be  expected  in  the  long  run. 
Two  questions  present  themselves:  on  the  one  hand,  why  is 
the  borrower,  whom  we  may  regard  as  the  purchaser,  willing 
to  pay  this  excess ;  on  the  other  hand,  why  is  the  lender,  or 
seller,  able  to  secure  it  for  himself?  In  other  words,  what  are 
the  conditions  of  demand,  represented  by  the  borrowers,  and 
what  the  conditions  of  supply,  rei)resented  l>y  the  sellers? 
These  we  will  consider,  in  the  order  stated,  in  the  present  and 
the  following  chapter.  The  conditions  of  demand  we  shall 
i.ialyze  first  with  reference  to  tlio.<e  borrowers  who  are  en  ,aged 
in  operations  of  prochiction;  since  we  are  considering  u.jt  the 
case  of  interest  derived  from  producer's  capital. 

Some  indication  of  the  conditions  of  demand  has  already 
been  given.  In  a  previous  chajjtcr '  the  nature  and  functions 
of  capital  were  (lescril)ed.  It  was  pointed  out  that  the  use  of 
capitnl  means  production  spread  over  time.  Production  with 
cnjiital  has  been  aptly  described,  in  Bohm-Bawerk's  phrase, 
as  indirect  or  roun(!al)out  production.  Labor  is  first  applied 
to  making  tools,  collecting  materials,  perfecting  means  of  com- 
munication; filially,  at  the  close  of  jm-paratory  steps  which 
nay  be  long  and  arduous,  the  enjoyaliie  product  emerges,  and 
emerges  in  much  greater  al)undancc  than  if  labor  had  been  ap- 
plied directly.  The  iuiiii«,  the  railway,  the  steamship,  the  inm 
works,  the  fni'tory,  the  warehouse,  the  wholesale  and  ntnil 
store,  all  stand  for  a  prolonged  and  time-requiring  process  of 
profliiction. 

Further,  production  in  the  .'vdvai"-«l  communities  of  modern 
times  is  "capitalistic"  in  another  seii«"' :  there  is  a  class,  sepa- 
rate in  the  iniiiii,  of  capitnlists,  Tlie  lontJ-maintained  applica- 
tion of  lalior  in  siU'C(<ssivr  steps  is  p'»ssilile  only  if  at  the  out- 
set there  has  been  a  surplus,  if  thei"  h.'is  been  saving  and 
nccuiiiiilation  in  some  form.  The  i><t'.iii'<  \>  ho  do  the  saving 
>  8w  Book  I,  f  hnptpr  5.  il  1  -S. 


THE  CONDITIONS  OF  DEMAND  7 

and  possess  the  surplus  are  commonly,  though  not  necessarily, 
a  different  set  from  those  who  do  the  labor.  They  hire  the 
laborers  in  the  various  stages  of  the  productive  operations. 
The  creation  of  capital,  and  the  emergence  of  iiiterest  as  a 
distinct  element  in  distribution,  are  alike  the  ronsciiuencos  of 
the  double  process  of  surpluses  saved  and  of  lal)()r  ai)plied  in 
roundabout  ways. 

We  have  now  to  note  more  explicitly  that  this  process  raeana 
an  increase  in  the  productiveness  of  labor.  The  great  mudern 
flour  mill  is  more  efficient  than  the  mode.«t  grist  mill  of  former 
times.  Per  unit  of  lal)or  applied,  more  is  accomplished.  To 
make  an  accurate  comparison  of  labor  product  between  two  such 
cases  would  call  for  intricate  computation.  On  the  one  hand, 
the  modern  mill  stands  for  much  more  of  pieparatory  labor. 
On  the  other  hand,  it  is  usually  more  durable,  and  the  labor 
applied  to  making  it  contiimes  to  play  its  i)art  through  a  long 
period,  until  the  mill  is  finally  worn  out  and  liiscarded.  The 
later  labor  in  the  series  —  tl  done  by  the  current  workers 
in  the  modern  flour  mill,  \\..  turn  out  their  thousands  of 
barrels  a  day  —  seems  much  more  effective  than  t'lat  of  the  old- 
fashioned  miller;  because  we  do  not  onlinarily  think  of  the 
preliminary  labor  embodied  in  the  plant  as  engag-tl  in  milling. 
That,  even  so,  the  efncicncy  of  all  the  labor  engaged,  of  earlier 
as  well  as  of  later  <lat(\  is  greater,  is  shovii  by  the  simple  com- 
parison oi  prices:  lldur  is  vastly  cheaper  (.that  is,  the  e.vcess  in 
price  of  flour  o  .  g,\iin)  *haii  in  former  <lays.  So  in  the  rail- 
way :  there  has  brt  n  ui<  enarmous  application  of  capital  --  that 
is,  of  previous  lalior  -  with  an  outcoine  nf  transportation  rates 
so  low  as  to  prove  that,  taking  account  of  all  the  labur  of  con- 
etruction,  'uaintenance,  and  operation,  its  efiieiency  is  immeuHely 
greater  than  that  of  the  simpler  instruments  of  pack  horse 
and  wagon. 

This  consoquence  has  soiiietiines  been  stated  bj  saying  that 
cahitid  is  nri>i|iicti\i- ;  ii  n!!r:i><'  wbii'li  inusf  lie  useil  wi'li  eiife, 
Th(*  Mtrii'tly  accurnte  statement  i*  that  lal>or  applied  iu  some 
ways  is  more  |)roductive  than  labor  ajtplied   in  oilier  ways. 


± 


8 


THE  DISTRIBUTION  OF  WEALTH 


I 


Tools  and  machinery,  buildings  and  materials  are  themselves 
made  by  labor,  and  represent  an  intermediate  stage  in  the 
application  of  labor.  Capital  as  such  is  not  an  independent 
factor  in  production,  and  there  is  no  separate  productiveness 
of  capital.  When,  in  the  following  pages,  the  productivity 
of  capital  is  spoken  of,  the  language  must  be  taken  as  elliptic, 
expressing  concisely  the  result  of  the  capitalistic  application  of 

labor. 

All  this  analysis  of  the  relation  of  labor  to  capital  and  to 
savings  leads,  again,  to  the  proposition  that  all  the  operations 
of  capitalists  resolve  themselves  into  a  succession  of  advances 
to  laborers.'  Some  persons  have  a  surplus,  and  set  it  aside  for 
investment,  —  th«?y  are  the  capitalists  pure  and  simple.  Still 
other  persons  borrow  this  surplus  (very  likely  using  also  avail- 
able means  of  their  own)  and  hire  hiboi  to  make  tools  and 
materials,  to  carry  on  all  the  stages  of  p-oduction,  and  so  pro- 
duce in  the  end  more  consunml)le  commodities  than  have  been 
turned  over  to  the  laborers.  The  laborers  as  a  whole  produce 
more  than  they  receive.  Those  who  l)orrow,  and  then  hire  the 
laborers,  can  afford  to  pay  back  more  than  they  have  borrowed. 
This  is  the  process  by  which  interest  on  capital  used  in  pro- 
duction comes  into  existence. 

§  4.  Let  it  be  supposed  now  that  at  any  given  time  the 
capitalistic  ways  of  production  -  the  applications  of  tools, 
machinery,  materials,  and  tlie  lik<'  -  have  l)een  so  settled  and 
established  as  to  l)ecome  familiar  to  all.  T^et  it  Iw  supposed 
also  that  they  are  e<iually  available  for  all;  that  no  one  hiw  a 
monopoly  of  any  particular  fttnn;  that  nil  who  wish  to  use 
them  are  in  unfettered  competition  with  each  other.  No 
borrower  will  then  be  al)le  to  secure  a  gn-ater  advantage  than 
any  other  fronj  the  use  of  savings,  in  getting  (MMitrol  <>f  any 
particular  kind  of  capital.  CoinpHiticm  will  bring  llie  return 
in  all  channels  of  investment  to  the  same  level,  What  will 
•letennine  thai  iiiiifnmi  icVti  .' 

All  tho  constituent  parts  of  cajjital,  though  they  will  yield  the 

'.H,,.  Hook  I.  Clmptcr  .'>,  | .'». 


A 


THE  CONDITIONS  OF  DEMAND 


9 


»  3 


I 


same  return  to  those  applying  them,  will  not  necessarily  affect 
to  the  same  degree  the  productivenei-.s  of  labor.  Some  may 
be,  and  almost  surely  will  be,  more  helpful  in  production  than 
others.  Imagine  that  a  community,  once  in  possession  of  a 
stock  of  tools  and  appliances,  is  compelled  to  part,  by  succf  - 
sive  steps,  with  installments  of  this  capital.  Clearly  it  would 
first  relinquish  those  parts  which  contributed  least  to  the  effi- 
ciency  of  labor,  and  then,  as  more  and  more  luid  to  be  given 
up,  would  relinquish  others  in  the  inverse  order  of  scrviceable- 
ncss.  It  would  reserve  to  the  very  last  those  constituents  of 
capital  —  that  is,  those  means  of  rounrlabout  production  — 
which  added  most  to  the  efficiency  of  lal>or.  These  means  — 
the  last  to  l>e  given  up,  the  first  to  be  ased  under  existing  con- 
ditions—  would  probai)ly  be,  on  Ihe  one  hand,  the  agricul- 
tural processes  which,  in  the  temperate  climate,  involve  .seasonal 
operations,  such  as  seed  and  farming  tools,  and  afK)ut  a  year's 
surplus  of  food;  und,  on  th>^  other  hand,  the  metallurgical 
processes  which  yield  iron,  the  prime  requisite  for  almost  all 
tools.  These,  the  most  effective  forms  of  capital.  ha%'e  not 
necessarily  l>een  the  first  historically.  The  progress  of  invention 
may  have  brought  them  in  at  a  later  date  than  others  of  less 
serviceablene.ss.  But,  given  various  appliances  that  have 
come  to  exist  side  by  side,  .some  will  be  inure  etTective  than 
others,  and.  in  case  of  "nevitablc  curtailment,  would  Ix*  the 
lotigest  retiiineil. 

rnder  such  iinditions  the  gain,  or  prrmium,  or  interest, 
which  the  owners  of  capital  will  secure,  will  be  determined  by 
the  lea.st  productive  use  (if  capital ;  or,  to  be  aci-urute  in  language, 
by  the  atldition  to  the  ultimnte  product  of  labor  which  results 
from  the  least  effective  phase  cif  the  roundabou*  or  capital- 
usinu:  process.  Those  who  use  capital  ii\  ways  more  effective 
than  the  least  cannot  retain  the  su|M'rior  gain  for  themselves. 
Since  all  who  have  (  apital  at  coninuind  can  turn  to  these  more 
cfTective  ways,  competition  will  pre\cnt  any  one  set  of  persons 
Ironj  securing  especi;tll\  high  gain-  frnni  them.  It  is  the 
effect ivenes.s  of  the  hist  inst.illnient  of  surplus  or  capital    last 


11 


I 


10  THE  DISTRIBUTION  OF  WEALTH 

in  the  order  of  productiveness)  that  determines  the  rate  of  gain 
for  all  capital.  Or,  to  put  the  same  proposition  m  other  words, 
the  return  to  capital  depends  on  its  marginal  productivity. 
"Productiveness"  and  "productivity"  are  used,  of  course,  m 
the  elli|)tic  sense  already  explained. 

It  mav  be  asked,  Do<>s  the  productiveness  or  serviceableness 
of  all  forms  of  capital  descend  to  that  of  the  marginal  forms? 
An  equalization  of  the  return  to  owners  of  capital  takes  place ; 
does  an  equalization  of  productivity  also  take  place?     Not 
necessarily.     The  outcome  is  like  that  which  we  have  found, 
in  discussing  the  principles  of  value,  as  to  the  utility  and  the 
price  of  the  several  constituents  in  the  supply  of  an  enjoyable 
commodity.'   Though  all  tlie  units  of  a  supply  sell  in  the  market 
at  the  same  price,  not  all  have  the  same  utility.     There  B 
such  a  thing  as  consumer's  surplus.     Similarly,  though  the  re- 
turn to  the  owners  of  all  the  constituents  of  capital  is  under 
free  competition  the  same,  the  •■ontribution  from  all  to  the 
community's  well-being  is  not  th(>  same.     Some  retnr.m  more 
Horviceabu".  than  others.     And  the  difference  in  s,.rv.ceablenes8 
shows  itself  -.n  the  same  way  as  in  the  case  .)f  the  utilities  from 
enjovahle   goods, -it  affects  ronsamer's  surplus.     The  more 
efTective  uses  of  capital  lead  in  especial  degree  to  greater  abun- 
dance of  commo.lities.  to  ampler  provision  of  s.nie  sorts  of 
utilities,   an. I  so  to  wider  satisfaction  of  wants  in  the  com- 
nmnity  at  lar,u;e. 

A  similar  principle  to  (hat  which  underlies  the  theory  of 
value  thus  underlies  the  theory  of  capital.  Margnml  ut.hty 
(U'termines  the  current  valw  of  conmiodities ;  margmal  i)ro- 
ductivitv  .letcrinines  the  curn-nl,  rate  of  interest.  There  ar« 
utilitiesin  goods  (and  services)  greater  than  at  the  margin. 
Th.-re  are  (oiitril^utions  from  different  forms  ..f  capital  to  the 
social  income  gre.t.-r  th.u.  at  the  margin.  These  surpluses  the 
individual  owner  cannot  keep;  the  community  at  large  enjoys 
theu.  in  (he  in-.,  of  (onsumrr's  .un>lus. '     Au'l  the  same  sort  of 

1  S...-  Il,...k  II.  rimi.t.T  <1,  .■,.,.r.i,illy  II  ."H  <i.  

a77,     A  contrwy  vi.'W  U  iraplii.l  lu  <  iHrk,  IhXnbulwn  of  W  ^allh.  C  h.pUr  XXI. 


i 

1 


THE  CONDITIONS  OF  DEMAND 


11 


difficulty  which  we  found  in  measuring  consumer's  surplus  as 
to  value  and  utility  would  appear  if  we  endeavored  to  measure 
the  same  sort  of  surplus  as  to  capital  and  its  varying  effective- 
ness. What  constituents  of  capital  would  be  longest  retained, 
and  how  great  the  effectiveness  of  this  most  precious  remnant 
would  be,  we  cannot  possibly  gauge.  We  can  only  rest  assured 
that  differences  in  the  degree  of  gain  there  are,  and  that 
society  as  a  whole  profits  greatly  through  securing  all  forms 
of  its  capital  at  the  same  rate  that  it  pays  for  the  least  ad- 
vantageous forms. 

§  5.  Some  of  the  most  acute  economists  of  our  day '  have 
stated  this  part  of  tlie  theory  of  capital  and  interest  in  dif- 
ferent terms,  though  with  a  conclusion  not  in  essentials  very 
divergent.  Briefly,  their  view  is  that  by  a  resort  to  more  and 
more  capitalistic  or  roundal)Out  ways  of  production,  the  out- 
put per  unit  of  labor  can  be  indefinitely  increased.  But  this 
increa.se  does  not  take  place  continuously  at  the  same  pace. 
There  is  a  tendency  to  diminishing  gain,  or  diminishing  return  ; 
a  tendency  to  a  decline  in  the  rate  of  increase  in  production. 
Add  more  tools  and  appliances  —  that  is,  do  more  and  more 
labor  of  preparation,  make  your  total  process  of  production 
more  prolongeil  and  elaborate  —  and  you  will  always  get  a 
larger  final  output.  But  the  increase  in  the  productiveness  of 
labor,  great  in  the  firs*  stages  of  this  capitalistic  way  of  apply- 
ing it,  becomes  less  in  the  later  stages.  There  is  believed  to 
be  no  limit  to  the  heightened  efficii'iicy  of  lul)or  due  to  marshal- 
ing it  over  time  and  elaborating  machinery  and  materials 
more  and  more.  The  obstacle  is  'ike  that  in  pulling  a  stout 
rubber  band :  it  can  always  be  stretched  a  bit  more,  but  each 
additional  application  of  force  means  a  lessened  effect. 

In  this  view,  it  will  be  seen,  differences  in  productivity  and 
marginal  productivity  appear  not  only  on  taking  a  cross- 
section  of  industry  at  a  given  moment,  but  in  the  development 
of  jnduatrv  over  the  course  of  titne.  The  tendenev  to  diiniuish- 
ing  gain  in  efficiency  may  indeed  be  counteracted  hy  invea- 
■  For  <>iftinpl«,  Prnfi'itaor*  HAhiD-n»w«rk,  Clwk,  and  Carvw. 


\  t 


12 


THE  DISTRIBUTION  OF  WEALTH 


'4 


tions  and  improvements.  But  in  the  absence  of  such  progicss, 
the  marginal  increase  of  gain  tends  to  sink  and  so,  too,  the 
rate  of  return  on  capital ;  and  it  sinks  gradually  and  with  some 
degree  of  regularity. 

It  would  follow  as  a  corollary  that  the  application  of  capital 
can  be  increased  indefinitely  without  bringing  a  cessation 
of  return  in  the  way  of  interest  to  the  owner  of  capital.  Ad- 
ditional installments  could  always  be  used  to  some  advantage ; 
there  would  always  be  some  marginal  productivity.  Interest,  m 
other  words,  would  persist  indefinitely,  notwithstanding  the 
utmost  growth  of  accumulation.  Whereas,  in  a  more  skeptical 
view,  the  indefinite  increase  of  savings  and  of  capital  may 
cause  the  point  of  satiety  to  be  reached.  Unending  increase 
in  the  means  for  applying  preparatory  labor  may  bring  diffi- 
culty, nay  impossibility,  in  using  the  savings  to  advantage; 
and  then,  so  far  as  the  forces  ot  demand  determine  interest,  it 
will  be  brought  down  to  nil. 

Like  other  problems  bearing  on  the  distribution  of  wealth, 
this  must  be  confessed  to  1)2  unsettled.  To  enter  on  a  full  dis- 
cussion of  the  trains  of  reasoning  involved,  wouUl  pass  the 
compass  of  the  present  book.  I  will  present  concisely  my 
reasons  for  hesitating  to  accept  a  general  principle  of  diminish- 
ing returns  in  the  applications  of  capital. 

The  increase  of  tools  and  instruments  may  be  supposed  to 
take  place  in  two  ways :  either  by  the  addition  of  more  tools 
of  the  sort  already  in  use,  or  l)y  the  addition  of  new  kinds  of 
tools.  Mere  duplication  of  familiar  tools  would  seem  to 
promise  little  or  nothing  in  the  way  of  Rreat(>r  productiveness. 
Twice  as  many  saws  or  planes  for  each  cari)enter,  twice  as 
many  looms  for  each  weaver,  twice  as  many  locomotives  for 
each  engineer,  —  such  a  proceeding  does  not  mean  that  more 
will  be  accomplished  by  the  carpenters  an  1  weavers  and  en- 
gineers. It  n..'ans  an  embarra.ssment  of  r  hcs.  Of  the  com- 
pllcatod  mafhinrry  of  a  grrat  factory  this  would  "cm  to  be 
true  also.  To  nm  this  machinery,  a  certain  staff  of  operatives 
is  required,  adjusted  to  it  by  nice  experiment  and  calculation. 


THE  CONDITIONS  OF  DEMAND 


13 


Duplicate  the  whole  outfit,  and  there  will  be  no  one  to  take 
charge  of  it.  The  staff  can  utilize  no  more  than  is  already  on 
hand. 

More  difficult  is  the  problem  as  to  the  second  way  in  which 
the  additions  to  capital  may  be  supposed  to  take  place.  Here 
it  is  assumed  that  there  are  not  more  tools  of  the  same  kind, 
but  tools  of  a  more  elaborate  and  complex  kind.  With  greater 
savings  and  greater  possibility  of  applying  labor  in  advance, 
capital  takes  by  a  qua.si-automatic  process  a  different  form: 
not  two  saws,  but  one  larger  and  better  saw ;  not  two  loco- 
motives, but  one  heavier  and  more  powerful.  The  mere  fact 
of  greater  present  resources  availa})le  for  investment  causes  the 
roundabout  operations  to  be  ctended,  the  time  of  the  whole 
process  to  be  prolonged.  Plant  becomes  larger,  machinery 
more  complex  and  more  nearly  automatic,  materials  are  heaped 
up  in  more  varied  suj)ply.  Th^n  product  ultimately  becomes 
greater;  but  in  the  rate  of  increase  there  is  supposed  to  bo  a 
tendency  to  diminution. 

It  is  the  quasi-automatic  or  predictable  character  of  this 
process  of  elaboration  that  .seems  to  me  doubtful.  The  more 
"capitalistic"  application  of  lal)or  does  not  necessarily  bring  an 
increase  in  efficiency.  Where  it  does  bring  such  an  increase, 
the  more  prolonged  i)n>iniration  may  be  effective  at  the  same 
rate,  or  at  an  increasing  rate,  or  at  a  decreasing  rnte.  The 
outcome  depends  on  the  progress  of  invention,  concerning 
which  no  rule  can  be  laid  down. 

It  is  true  that  during  tiie  last  ceiitury  and  a  half,  in  tlu' 
period  since  the  Industrial  devolution,  the  progress  of  the  arts 
has  been  precisely  in  the  direction  of  making  apjjliances  wliicli 
require  time  and  labor,  a  'd  which  thereby  greatly  increa.'^e  the 
eventual  productiveness  of  labor.  Nor  is  there  any  indication 
that  progress  of  this  kind  will  cease.  The  history  of  the  last 
few  generations,  and  th(>  prospects  for  the  next  few,  supjxirt 
tbo  proposition  ihnt  the  itvro.'isc  of  savings  .'ind  of  ('ajiilnl  b.'is 
brought  and  will  bring  greater  efficiency  of  lalu)r  without  visible 
hmits.     I'ut  this  has  been  due  and  will  continue  to  be  due  to 


i 


IM 


k 


mi 


14 


THE  DISTRIBUTION  OF  WEALTH 


a  host  of  projectors  and  inventors,  to  a  succession  of  steps 
each  one  of  which  is  at  the  outset  more  or  less  doubtful.  How 
great  such  progress  will  be,  and  how  long  it  will  continue, 
cannot  be  predicted.  The  possibility  of  an  indefinite  use  of 
savings  and  of  an  indefinitely  increasing  effectiveness  of  capital 
is  not  a  tendency  inherent  in  industry,  but  a  fact  of  compara- 
tively short  experience  in  the  modern  world. 

To  put  the  same  problem  in  another  way :   the  roundabout 
or  capitalistic  process  may  be  supposed  to  adjust  itself  to  the 
supply  of  present  means  (savings) ;    or  the  supply  of  present 
means  may  be  supposed  to  adjust  itself  to  the  roundabout 
process.     The  first  is  the  view  of  those  who  maintain  the 
quasi-automatic  transformation  of  capital  as  it  increases,  and 
the  tendency  to  diminishing  returns  as  it  is  transformed  into 
more  complex  shapes.     The  second  seems  to  me  the  view  more 
in  accord  with  historical  fact.    The  progress  of  invention  has 
taken  the  direction  of  more  elaborate  and  complex  capital; 
hence  t».ere  has  been  the  possibility  of  using  a  larger  and  larger 
volume  of  savings  in  productive  ways.    The  supply  of  savings, 
as  will  appear  in  the  next  chapter,  is  highly  flexible.    It  has 
taken  advantage  of  all  available  opportunities  for  investment, 
and  will  continue  to  do  so ;  it  has  enabled  factories,     achinery, 
railways,  steamships,  electric  appliances,  to  be  made  as  fast  as 
inventors  have  shown  the  way  to  the  effective  use  of  these 
forms  of  capital.    It  is  true  that  in  this  matter,  as  in  so  many 
others  dealt  with  by  the  economist,  there  has  been  an  inter- 
action of  causes ;  none  the  less  it  is  more   true  to  say  that 
the  progress  of  the  arts   has  made   possible  ;he  vast  invest- 
ment of  savings  than  that  the  great  volume  of  savings  has 
brought  alx)ut  the  progress  of  the  arts. 

But  the  differenc's  in  opinion  on  this  point  do  not  affect  the 
main  conclusion  stated  above,  —  that,  at  any  given  period,  the 
rate  of  return  on  capital  depends  on  the  gain  in  productiveness 
from  the  lt>ast  effective  i)iirl  of  iU^  rai>ital.  80  far  as  this 
proposition  is  concerned,  there  seems  to  be  substantial  agree- 
ment among  modern  economists.     Whethei;  or  no  it  is  believed 


i 


THE  CONDITIONS  OF  DEMAND 


15 


s 


that  there  is  a  really  separate  productivity  of  the  capital  as 
distinct  from  the  labor,  and  whether  or  no  it  is  believed  that 
the  differences  in  the  productivity  of  capital  show  themselves 
through  a  process  of  diminishing  returns,  it  seems  to  be  agreed 
that  the  factor  which  determines  the  rate  of  interest  on 
capital  used  for  production  (so  far  as  it  is  dependent  on  de- 
mand) is  the  gain  in  efficiency  or  output  accruing  with  the 
last  or  marginal  installment  of  capital. 


1 


i  . 


CHAPTER  39 

Interest,   continued.     The    Equilibrium   of    Demand   and 

Supply 

§  1.  We  turn  now  to  the  r  iitions  of  supply  for  capital, 
and  to  the  equilibrium  of  supi^.y  and  demand.  The  rate  of 
interest,  like  the  value  of  a  commodity,  is  settled  at  any 
given  time  chiefly  liy  demand.  But  in  the  long  run  the  varia- 
tions in  supply  must  have  their  effects  also.  What  is  the  situa- 
tion of  those  persons  who  have  a  surplus  of  present  means,  — 
the  lenders  ? 

If  the  accumulation  of  a  surplus  were  in  no  way  irksome, 
the  supply  of  present  means  or  savings  would  increase  rapidly 
and  indefinitely  under  the  inducement  of  a  reward  in  the  way 
of  interes  So  long  as  borrowers  were  willing  to  pay  a  premium 
—  to  return  to  lenders  more  than  had  been  supplied  by  the 
lenders  —  these  latter  would  accumulate  more  and  more,  and 
their  increasing  savings,  put  .t  the  di.sposal  of  producers, 
would  allow  greater  and  greater  advances  to  laborers.  Assum- 
ing tlie  arts  to  remain  the  same,  and  no  new  ways  to  be  found 
for  increasing  the  ]iroductiveness  of  labor  by  more  elaborate 
iiiii)I(inents,  the  stuRc  would  be  reached  when  the  additional 
advances  to  laborers  would  biing  no  addition  to  the  output. 
The  marginal  produi'tivity  of  capital  would  then  be  nil,  and 
interest  on  capital  would  disappear.  If,  in  fact,  this  stage  is 
not  reached,  tiii>  renson  must  be  that  accuniulation  and  saving 
do  not  coiitiiiiic  iiKlfhriitcjy  iniless  there  be  some  inducement 
ofTen'd. 

§  2.  hoes  saviiifT--  the  putting  by  of  present  means  — 
necessarily  depend  >>u  :i  reward  in  tb.e  way  cf  prennum  or 
interest?  It  is  certain  that  tliis  is  not  universally  the  case. 
There  is  a  considerable  vohiiiie  of  saving  which  would  take 

tti 


THE  EQUILIBRIUM  OF  D1.MAND   AND  SUPPLY      17 


place  even  if  there  were  no  premium,  —  if  the  amount  paid 
back  in  the  future  by  the  borrower,  were  no  greater  than  the 
amou',^  now  supplied  by  the  lender.  Nay,  a  situation  is  con- 
ceivable under  which  the  familiar  relation  would  be  reversed, 
—  under  which  not  the  borrower,  but  the  lontler,  would  pay  a 
premium.  On  the  other  hand,  there  are  savings  which  would 
not  take  place  at  all  except  for  the  reward  which  is  commonly 
paid  by  the  borrower  as  interest.  These  gradations  in  the 
conditions  under  which  accumulation  anrl  lending  take  place 
call  for  some  detailed  consideration. 

One  extreme,  just  referred  to,  is  of  theoretical  concern  rather 
than  of  practical  importance:  the  caae  of  the  lender  who  is  so 
desirous  of  providing  for  the  future  that  he  is  willing  to  accept 
at  a  later  tlate,  as  the  price  of  the  safety  of  his  possessions,  a  less 
sum  than  he  parts  with  in  the  present.  This  situation  might 
conceivably  arise  where  means  were  very  abundant  in  the 
present  and  where  a  future  with  scantier  means  was  expected. 
Thus,  a  man  in  his  prime,  with  good  earning  power  but  without 
income-yielding  investments,  knowing  th:.,  old  age  must  come, 
might  .set  aside  a  considerable  amount  from  his  present  income 
in  order  to  be  assured  at  a  later  date  of  an  even  smaller  sum. 
At  forty,  $200  might  be  saved  from  an  ample  income  with 
conii)arutive  oase;  una  it  is  conceivable  that  it  would  be  saved 
cheerfully  in  onler  to  have,  at  the  age  of  seventy,  the  certainty 
of  S150.  Hence,  if  no  other  choice  presented  itself,  an  ex- 
change of  .S200  at  forty,  for  8150  to  b(>  received  thirty  years 
later,  would  not  be  out  of  the  question.  There  might  be  nega- 
tive interest,  .so  to  speak.  But  another  very  siin{)le  choice  in 
fact  presents  itself.  The  S2()()  may  In-  set  aside  //;  curpore, 
tucked  away,  and  kvpt  until  the  later  date  when  the  need 
becomes  greater.  It  may  i)e  hoarded,  without  being  lent  or  in- 
vested. This,  of  eourse,  is  feasil)le  only  if  tiuTe  be  some  kind 
of  commodity  which  does  not  deteriorate,  which  can  be  easily 
.-■•ifeguarded,  and  wliicli  maintains  its  value.  If  men  lived  in 
primitive  conditions,  and  all  incomes  were  •  ■<  ived  and  managed 
in  kind -if  the  actual  bread  and  meat  .,,id  to  l.e  |)ut  aside 
VOL.  II  —  r 


ll 


f 


18 


THE  DISTRIBUTION  OF  WEALTH 


in  order  to  provide  for  the  future -a  bargain  for  giving  a 
frrenter  amount  of  such  perishable  things  in  the  present  for 
the  guarantee  of  a  less  amount  in  the  future  is  eonceivable. 
But  money  brings  an  easy  alternative  between  present  and 
future  use.  CJivcn  ordered  govermn.>nt  and  security,  — given 
also  stable  value  of  money, -then  morey  in  hand  is  as  good 
as  money  in  the  future.  Specie  or  its  equivalent  in  paper 
money  can  be  hoarded  with  little  trouble  ;  elabor.iio  safe-deposit 
boxes  are  to  be  had  at  a  charge  insignificant  in  proportion  to 
what  they  will  contain.  H.-nce  we  may  set  asi<le  as  negligible 
the  possibility  of  negative  inter(>st.  The  present  will  command 
at  least  par  in  the  future.  It  is  this  sort  of  rea.>^oning  that  led 
Bohm-Bawerk  to  lay  down,  in  some.vhat  technical  tr-ms,  the 
general  proposition  that  present  goods  are  always  at  h-tu^t  equal 
in  vi.lue  to  future  goo.ls  of  like  kind,  —  because  -t  choice  exists 
between  present  and  future  \ise.' 

But,  though  the  cases  in  which  interest  might  be  negative  may 
thus  be  neglected,  those  in  which  it  might  bf  nil  arc  many. 
A  great  mass  of  savings  are  made  quite  without  the  need  of 
stimulus  in  the  way  of   premium  or  intenst.     In  such  cases 
present  means  wouM  l)e  (>x<'hanged  for  future  mians  at  i)ar. 
The  greater  part  of  the  dei)osits  in  savings  banks  in  most  civilized 
countries  are  probal)ly  of  this  nature,     A  va^t  numl>er  of  per- 
sons have  acquired  the  liai)it  of  i)rovi.ling  against  a  rainy  day. 
Where  a  secur<<  an<l  <'ouvenient  depository  is  offrred.  they  set 
aside  something  from  current    mcan^  as  a  saf«nuard   against 
future  (>mergencies.     If  inten-st  is  paid  on  such  savings,  it  Ih 
welcome  enough:   Ixit  the  savings  would  b(<  made  in  any  case. 
Not  only  deposits  in  s.avings  l)anks,  but  the  accumulations  of 
life    insurance  compani.s   from   annuid   premiums   partake    in 
some  degree  of  this  diaracter.      Provision  for  dependents,  by 
annual  payments  through  the  riKihunism  of  insurance,  would 

'  II  \-  ..(ill  rnniriviil.lr  thill.  rvi'M  willi  m"'l   e-rf.'.!  fi.nlilii'H  for  h.mnlinn.  " 

f,.«   hitrlilv  timor-H...  |H.|-.i.s  wnul  i  M.v  imHi.Iiv.    iiitrr  -I  fnr  ii  ,<mi.|.iw.mI1.v  uii- 

.  .      J  ..  __  '..:,.i-  ._;  ::^  :v  f.  -JL-  {•.tif.itt'Airi  iiiv*'H**tr*  r»ow^'|tt\« 

\Z<Ti'!"\Zs'ii'i^^''y'tuu,<ui  l"M,.:  ou^.  vrry  low  lut.T.'sl,  r»tii.  r  Uiuii  llio 

Hllfl't  lif  (irivillrU    liMilnl  ^^  ■  Mlili'  •! 


ii 


THE  EQUILIBRIUM  OF  DEMAND  AND  SUPPLY      19 


be  made  even  if  these  annual  payments  were  not  uugmenteil, 
as  in  fact  they  are,  hy  the  interest  added  to  them  l)y  the  insur- 
ing companies.  How  hirge  is  the  proportion  of  savings  l)ank 
and  Ufe  insurance  aceunnihitions  made  with  this  sole  motive, 
•  1,'  impossible  to  measure;   but  the  proporlion  must  be  great. 

J)  ,).  ' »!.  the  other  han<l,  there  are  aecumulatitms  that  will 
not  be  iii;i(.e  except  for  the  stimulus  of  a  reward.  Some  receipt 
c(  iiiteie:  t  is  i;u!:><netisable  for  a  large  part,  prol)ably  the  larger 
pu.t,  <•;'  the  savings  made  in  modern  coMUininities.  Yet  this 
stimulus  does  not  need  to  lie  aj)plied  in  its  full  strength  over 
the  whole  range.  Much  saving  that  is  done  with  a  view  to 
some  return  would  yet  contimie  even  if  the  return  were  lowered. 
Other  saving,  again,  reciuires  the  full  current  rale  for  its  um- 
tinuance.  The  (hlTerences  between  the  various  degrees  of 
Hthmilus  required  ii.r.  the  various  rates  of  return)  are  no  less 
noteworthy  than  the  broad  difference  between  some  return 
and  no  return  at  all. 

Suppose  the  rate  of  interest,  which  for  many  generations  has 
been  somewhere  near  four  or  live  per  cent,  should  drop  very 
sharply  to  two  per  cent,  or  on<'  piT  cent.  No  doubt  many 
persons  would  cease  t(»  s.ive.  Jiut  many  others,  especially 
those  with  large  present  means,  thos  •  who  have  enough  and 
to  spare  in  any  case, —  would  maintain  their  accunmlations 
unchecked, 

r  rhaps  the  most  characteristic  and  (luiuititatively  important 
ctt.se  of  this  sort  is  that  of  the  successful  busin<ss  num.  lie 
"nu.kes  money,"  in  the  ciirrent  phrase;  which  m«'aiisthat  his 
earnings  considerably  cxccimI  his  habitual  living  expenses,  and 
that,  without  sciisilile  deprivation  of  pri'seiit  pleasures,  lie  puts 
by  something  for  the  fulun  .  The  aun  of  sucli  men  iisuidly  is 
to  accumulati'  a  competeiu'c  or  a  fortunt'.  In  a  country  liki' 
I'ngland,  the  founding  of  a  "family"  is  a  common  aim:  (he 
transmission  to  cliiidren  of  a  sum  sullicieni  to  ciiMblc  thrm  'n 
take  their  place  anmiig  the  leisiin-cla.ss  idlers,  as.-tociation  or 
matrimonial  alliatUT  with  lln'  ufiitry  and  aristut  lacv,  eventually, 
if  (here  be  money  euougli  and  some  acMrtss,  a  knighthood  or 


20 


THE  DISTRIBUTION  OF  WEALTH 


even  a  pooraKo.  In  all  modern  communities  the  worship  of 
"society,"  perhaps  the  most  ubiquitous  phase  of  the  deep- 
rooted  and  universal  love  of  distinction,  contrihutes  powerfully 
to  accunuilation.  No  doul)t,  amonj?  the  active  men  of  affairs, 
other  motives  play  their  part,  — the  love  v'  power,  the  im- 
pulse for  activity,  mere  imitation  and  emulation,  (^ertain  it  is 
that  money-makiii-j;  is  impelled  l)y  very  complex  motives. 
.\monK  these  no  specific  rate  of  return  (<n  accumulation  plays 
a  dominant  |)art. 

It  has  heen  su)j;Kt'«ted  l>y  some  writers  that  within  a  con- 
sideralilt>  rauRe  a  decline  in  the  rat<'  of  interest,  so  far  from  check- 
ing accunuilation.  would  increase  it.  .Many  persons  amouR 
the  well-to-do  look  forward  to  providing  a  ,s(>ttled  income  for 
the  future,  either  for  themselves  on  their  retirement  from 
activity  or  for  their  widows  jind  chihlren.  In  order  to  provide 
a  "sutisfactory"  income  of  say  •'TUHH)  a  year,  a  capital  sum  of 
!?1()(),(HM)  must  i)e  put  \>y  if  the  rate  of  inten^st  is  5  per  cent. 
Hut  if  the  rat;'  is  2',  per  cent,  double  the  sum  must  he  jnit 
hy  in  ord<T  to  liriuR  the  same  income.  On  this  sort  of  reck(m- 
iiiK,  tt  lower  tlie  rate  of  return,  the  Rreater  will  l>e  tlu>  amount 
accumulated  and  invested. 

Su<'h  rea-;oninK,  however,  cannot  l>e  pressed  far.  No  doubt 
there  are  cases  in  which  a  de<  line  in  the  rat(>  firompts  a  wish 
to  Kit  together  a  larncr  capital  sum.  Hut  a  wish  is  very  dif- 
feiTiil  from  a  deed.  For  the  immense  majority  of  men  it 
would  lie  a  very  didicult  matter  to  doulile  the  amount  accu- 
mulated. ,\muiiR  those  who  have  very  largi' curretit  incomes 
but  still  wisli  to  accumulate  a  capital  sum.  the  small  niun- 
lier  of  business  men  autl  professional  men  wlinvr  earnings  are 
hinh,  it  may  Ik'  true  that  a  deelini'  in  interest  will  iiicrea.se 
rather  than  lessen  sdvinRs.  Hut  most  men  who  are  accutmi- 
latiiin  with  a  view  to  buildiie,;  up  a  "competence."  cannot 
with  ease  increase  their  sjiviiiKs  matt>rially,  not  to  mention 
<loul>linK  them,  '{'here  are  const.int  .and  pressinn  dennuids  of 
tn«'  moment,  innumerablr  i.-  inptinR  wiiys  uf  rjrtii.'ii:-;;  iramey  at 
once.     A  (h'c'uie  in  the  rate  of  interest  is  quite  as  likely  to  lead 


ii 


TFIE  EQUILIBRIUM   OF  DEMAND   AND  SUPPLY      21 

to  a  rpadjustmont  of  the  scale  of  what  is  a  "competency"  or  a 
"satisfactory"  income  in  the  future,  as  it  is  to  induce  greater 
savings.  In  the  sui)iiosecl  case,  the  man  who  had  looked  forward 
to  providing  for  himself  or  his  family  an  income  of  .'JoOOO  on 
a  capital  of  S10(),00(),  is  likely  to  say,  v  '  a  the  rate  falls  to  two 
and  one  half  per  cent,  —  then  an  income  of  82.')U()  must  suffi(;e. 

On  the  other  hand,  with  many  individuals  and  for  great 
amounts  of  savings,  the  usual  relation  of  price  to  supply  appears, 
—  namely,  a  higher  T)rice  leads  to  an  enlargement  of  supply,  and 
a  lower  price  to  a  loss(  ning  of  supply.  Stated  with  reference  to 
interest  and  capital,  the  proposi'ion  is  that  an  increase  in  the 
rate  will  bring  mor(>  savings  and  more  cai)ital,  a  decrease  less 
savings  and  less  capit.il.  N'o  on(>  would  doubt  that  if  the  rate 
rose  to  twenty  per  cent,  many  sums  would  be  set  aside  and  in- 
vested which  at  a  lower  nite  wo.ild  be  spe,,«  for  inunediate 
satisfactions.  Conversely,  if  the  rate  were  to  fall  to  one  per  cent, 
or  to  one  half  of  one  per  cent,  many  sums  would  be  spent  at  once 
which  at  a  higher  rate  are  saved.  Hetween  these  pos.sil)|e  ex- 
tremes is  the  current  rate  of  i-JiMi'thing  like  four  or  five  per  cent ; 
and  aujong  the  various  savings  the  -e  some  for  which  that 
current  rate  is  just  euough  to  iiidu(U'  luc  sacrifice  invclved. 

Thus  we  reach  the  conception  of  a  margin  There  are  intra- 
marginal  savings,  and  maru;iii  il  >ii\'ngs;  and  also,  it  may  !)o 
added,  extrauiarginal  or  potential  ,-aviiigs.  There  ai-e  tlu  wil- 
ling and  ahnost  siM)ntaiiei)u-<  savers, — those  whose  motives 
for  accunuilatioi\  are  so  strong  that  they  would  continue  even 
if  th<Te  were  no  return  at  all,  There  are  the  les^i  spontaneous 
liut  still  eager  savers,  who  neeil  tlic  sfimiilusof  some  return,  but 
would  go  on  even  though  thjif  return  were  lower  thiin  the  cur- 
rent rate.  There  aie  the  inaiginiil  sax'ers  cool  and  calculat- 
ing j)ers(ins  we  may  coiiceivc  them  for  whom  the.  existing 
rate  of  infitesi  is  just  enouuh  to  induce  the  s;icrilice  of  present 

for  future.     ,\nd  finally  lliiTr  a'"  tl xtr.'nn.r a;inal  savers,  who 

do  not  now  accumiilafe,  but  would  be  led  to  do  so  if  the  return 
were  to  increase. 

In  strictness,  we  should  s|)eak  not   of  more  or  lesx  willing 


22 


THE  DISTRIBUTION  OF  WEALTH 


I  ' 


savers,  but  of  iiistallinents  of  savi'         lore  or  less  easily  induced. 
The  saiiK'  peri-ou  may  be  very  icntly  disposed  as  regards 

different  parts  of  his  aecuinulatiuiis.  Soiuethiiig  he  may  put 
by  in  any  ease  foi  a  rainy  day ;  sonu-thing  more  he  may  put 
by  from  the  lovi^  of  social  distinction,  or  from  other  motives 
in  which,  though  the  expectation  of  some  return  plays  a  part,  a 
higher  or  lower  rate  is  not  decisive.  Sometiiing  more,  finally, 
he  can  be  induced  to  save  only  under  the  stinmlus  of  a  return  at 
the  existing  rates.  The  gradation  runs  not  by  indiviiluals,  but 
by  instalhnents.  There  are  marg'iial  savings,  even  tliough  there 
isperliai)s  no  individual  ail  of  whose  savings  are  at  the  margin. 
§  4.  The  outcome  of  the  discussion  of  demand  {carried  on 
in  tlie  j)rei'eding  chai)ter)  and  supi)ly  (in  the  pri'seiit  cliai)ter) 
can  be  .stated  in  simjjle  form  under  the  theory  of  value.  The 
several  installments  of  savings  are  to  be  hail  at  various  rates, 
sonn'  for  a  small  reward,  some  for  a  larger  reward.  The  case 
thu.s  is  one  of  varying  sui)i)ly  i)rice,  coming  uniler  the  principle 


I   i 


THE  EQUILIBRIUM  OF  DEMAND  AND  SUPPLY      23 

of  increasing  costs.     A  diagram  of  the  familiar  sort  will  illus- 
trate the  situation.' 

The  conditions  of  demand  are  indicated  by  thi;  line  DD', 
whose  descending  slope  represents  the  diminishing  productive- 
ness of  the  several  installments  of  cai)ital.  The  ascending  lino 
OliS  indicates  the  conditions  of  supi)ly,  —  the  increasing  prices 
which  must  he  paid  in  '^"der  to  induce  the  several  installments 
of  savings  which  enal)le  the  capital  to  l)e  forthcoming.-  This 
line  in  its  earlier  part  does  not  rise  above  the  base  line  OH. 
That  is,  some  savings  would  i)e  made,  even  if  nothing  were; 
paid  in  the  way  of  interest  on  capital.  Nay,  if  \v<«  i)cli('vc  tliat 
the  disi)osi(ic)n  and  incentive  to  provide  for  the  future  is  so 
great  among  .some  savers  that  a  smaller  sum  in  the  future  will 
be  accei)ted  by  them  in  return  for  a  larger  sum  in  the  present, 
the  lin(>  in  its  earlier  i)art  will  sink  Im'Iow  the  Ijusc  line,  and 
will  begin  at  ()'.  There  would  be  negative  interest  if  the  rate 
were  determined  solely  by  the  competition  of  these  persons. 
As  we  reach  installments  as  to  which  the  disjjositiou  t(  save  is 
less  and  less  strong,  and  more  and  more  must  l)e  paid  in  order 
to  induce  accunuilation.  the  line  rises.  l''iiially.  we  reach  the 
marginal  saver  at  li.  The  price  at  which  he  is  willing  to  save 
corresponds  to  the  gain  which  is  sccurrd  from  the  use  of  the 
marginal  increment  of  capit.al.  lien-  etiuilibriuni  is  reached; 
the  rate  of  interest  settles  at  a  point  where  the  marginal  pro- 
ductivity of  cai)ital  s,i(Hces  to  bring  out  the  marginal  in-tallment 
of  saving. 

Mvitlently  those  persons  whom  we  have  designated  as  s))ou- 
tiineous  .savers  those  who  are  disposed  to  sa\'e  innler  any 
circinnstaiices  gain  .sonietliing  in  the  nature  of  a  surplus. 
The  total  amount  i)aiil  a-  interest  is  indiealed  by  the  rectangle 
I'P'IUf.     There  is  a  large  amount  of  savers'  .surjilus  or  savers' 


>  r'<iiiip.'ir<'  Un„\i  II.  (  hiiiit.i    I'l. 

•  The  NMiridi'i  ■<  or  ilHiilililii-<  iin  nlv  I'll  in  (lie  iiHl.'illiniiiti  :\r<'  not  ihi.  f<;irilv 
nii'llHII''<'<l  l<v  tlir  iirii'i'!<  rullliiu  tlicni  out  i'lioNr  .4:i\iiLi(.s  wliii'l  nmild  In'  iiiailo 
willldUt  illtirrnl  UmIiiN  l\n\  NltVllltC*!  Ilia\  ill\  ojvc  serious  -^Mrlllin'.  II'  ir,  lix  III 
lloc.k  II,  till'  »1I|M'I\  xrli.'.hil,'  |^l:lt^^.  to  ihr  in  it  til -of  fiirl  inii'Ntion  of  (he  prii'"' 
which  tiiu«t  1)1'  t>uii|  ill  or>l>  r  |ii  nil!  out  ii  uivcn  i<iip|i|.r. 


24 


THE   DISTRIBUTION  OF  WEALTH 


rent,  indicated  i)y  the  area  OliP'P,  or  possibly  O'RP'P.  For 
those  who  would  save  mi  any  case,  the  whole  of  the  interest 
which  they  receive  is  in  the  nature  of  surplus.  For  those  who 
would  be  willing  to  save  at  a  smaller  rate  than  that  current, 
a  part  of  what  they  receive  in  interest  is  surplus. 

How  great  now  is  this  surjilus  in  modern  civilized  communi- 
ties? or,  in  other  words,  what  is  the  conformation  of  the  line 
ORP'  ?  In  Figure  1  it  is  represented  as  rising  slowly  from  OR, 
and  approaching  P'  somewhat  steeply ;  indicating  that  much 
saving  would  be  done  for  less  than  the  marginal  or  market 
price,  and  that  there  is  a  large  amount  of  savers'  surplus.  But 
it  ia  no  less  possible  that  ORP'  should  rise  steeply  from  OR, 
and  then  move  nearly  parallel  to  PP',  as  in  Figure  2 ; 


Kio 


indeed,  it  may  be  coincidc.it  with  /7"  in  the  latter  part  of  its 
course.  In  other  words,  a  iiirge  part  «)f  the  saving  may  need 
the  stimulus  of  tlie  wh.ole  current  rute  of  retunu  or  iii'iirly  the 
whole,  ami  savers'  sur])lus  may  be  c(>rresjM)n('lngly  less  in 
amount.     And  a  further  <iuestiiiu  arises  as  to  the  conformati(u> 


THE  EQUILIBRIUM  OF  DEMAND  AND  SUPPLY      25 


of  the  supply  'ine  beyond  P'.  Suppose  there  is  a  general  in- 
crease in  demand  (which  would  be  indicated  by  a  shifting  of 
the  demand  curve  to  the  right), — will  the  rate  of  interest  per- 
manently rise,  or  will  the  supply  of  savings  and  capital  rapidly 
extend  and  bring  the  rate  of  return  back  to  the  amount  BP'l 
In  other  words,  is  BP'  capable  of  beiuK  continued  to  the  right 
indefinitely,  prolonging  the  horizontal  line  PP'  beyond  P'  with- 
out rising  in  its  further  course?  To  some  of  these  questions 
our  answers  must  be  quite  uncertain ;  and  even  for  those  which 
we  can  answer  with  some  assurance  we  must  rely  on  general 
observation  rather  than  on  any  accurate  data. 

As  has  already  liecn  intimated,  it  is  toIeral)ly  clear  that 
there  is  much  of  savers'  surplus ;  but  how  much,  it  is  impossible 
to  say.  One  might  hazard  the  guess  that  the  line  ORP'  has 
some  such  conformation  as  is  shown  in  Figure  2 ;  that,  after 
lingering  for  a  part  of  its  length  along  OB,  it  ri.scs  gradually 
to  a  point  near  PP',  and  in  the  latter  part  of  its  course  runs 
nearly  parallel  to  PP'  or  coincident  witli  it.  Thence  it  would 
follow  that  a  decline  in  the  demand  for  capital,  unless  very 
great,  would  not  .sensibly  affect  the  rate  of  return  on  it;  since 
the  decline  in  the  rate  would  check  many  savings  which  were 
at  th(>  margin  or  near  the  margin,  and  hence  would  bring 
ai)out  a  decline  in  the  supply  of  capital.  No  test  of  this  kind, 
however,  is  likely  to  be  ajjplied  in  modern  communities.  The 
demand  for  capita'  has  grown  enormously  during  the  last  cen- 
tury or  two,  and  there  is  no  indication  that  it  will  cease  to 
grow  in  the  future.  In  other  words,  the  gain  from  the  use  of 
iiKire  and  more  capital  in  pr<Mluction  has  been  great,  and 
jMomiscs  to  contiiiue  great.  The  progress  of  invention  and  of 
iniprovemi'iit  in  the  arts  has  .steadily  moved  the  line  DD'  (at 
least  in  its  lower  rejiches)  to  the  right  ;  it  has  never  sliift«Hl  the 
line  to  the  left.  .\t  tin  .-.iimc  time,  the  respnns<'  of  lli(>  supply 
of  capitiil  has  been  riipid  and  .sure.  Notwithstanding  the  vast 
increusi'  in  dcniand.  tlie  rate  of  interest  I'.as  remai'ied.  on  the 
whole,  singula. ly  ev<'n  ;  indicating  that,  so  far  as  the  exten- 
sion of  OHI^'  toward  the  right  goes,  it  has  been  prolonged,  and 


26 


THE  DISTRIBUTION  OF  WEALTH 


I  i- 


probably  will  continue  to  be  prolonged,  without  any  permanent 
tendency  to  rise. 

§  5.  The  steadiness  of  the  rate  of  interest  during  the  vast 
changes  since  the  industrial  revolution  of  the  :!ighteenth  cen- 
tury is  a  remarkable  phenomenon.  Holland  and  England  were 
able  to  borrow  in  the  middle  of  that  century  at  about  three 
per  cent.  Since  then  the  rate  has  fluctuated  between  a  minimum 
of  something  like  three  per  cent  and  a  maximum  of  something 
like  six  per  cent.  In  new  countries  it  has  tended  to  be  higher 
than  in  old  countries;  and  in  times  of  activity  and  of  hopeful 
investment  it  has  l)een  higher  than  in  times  of  depression. 
Great  wars,  with  their  consefjuence  of  heavy  public  borrowing 
(of  which  more  will  l)e  said  presently),  have  raised  the  rate 
on  occasions;  then  it  has  slowly  (lecline(l  as  the  normal  con- 
ditions of  peace  have  l)een  gradually  restored.  During  the 
first  three  quarters  of  the  nineteeiitii  century  the  rate,  in  older 
countries,  was  usually  in  the  neighborhood  of  four  and  five  per 
cent,  and  in  newer  countries,  six  per  cent  or  a  trifle  more.  Dur- 
ing the  last  quarter  of  the  nineteenth  centiuy  it  sank  to  three 
and  four  per  cent  in  older  countries,  five  per  cent  in  newer. 
Since  the  opening  of  the  twentieth  century  a  ri^e  has  again 
appeared  ;  how  long  it  will  maintain  itself,  cannot  l)e  predicted. 
We  are  considering  here,  it  need  hardly  be  said,  not  the  fluc- 
tuating rates  of  interest  on  short  loans,  but  the  long  [)eriod  rate 
on  permanent  investments.  The  trend  of  this  rate,  to  rei)eat,  in 
view  (tf  the  extraordinary  increase  alike  in  the  demand  for 
caj)ital  and  in  the  supply  of  capital,  has  been  remarkably  even. 

I'Vom  this  it  is  perhaps  not  an  unjustified  inference  that 
tl'.ere  is  a  large  vo'ime  of  savings  at  the  margin.  The  steadi- 
np.>*s  of  the  rate  of  interest  through  so  long  a  perioti  of  striking 
changes  both  in  the  uses  and  in  tli>  accumulation  of  capital, 
would  seem  to  point  to  a  steadying  cause,  —  a  marginal  supply 
price  to  which  the  rale  of  return  on  the  whole  has  adjusted 
its<>lf.  That  supply  pric.v  U-.  ho  siirc,  i^  hk^ly  to  !h=  a!Tt  t^  if 
in  the  futm-e  l)y  the  very  fact  of  large  accumulation,  or  at  least 
by  those  general  industrial  and  social  conditions  which  accom- 


THE  EQUILIBRIUM  OF  DEMAND  AND  SUPPLY      27 

pany  large  accumulation.  The  increase  in  the  number  of  per- 
sons belonging  to  the  well-to-do  classes,  and  in  their  incomes, 
causes  saving  and  investment  to  be  greater  in  volume  and  to 
entail  less  sacrifice.  The  marginal  .^ui)ply  price  may  sink  in 
the  course  of  the  next  t\V(>nty  or  fifty  years  to  some  such  rate 
as  two  per  cent.  Hut  the  experience  of  the  last  few  generations 
makes  a  greater  decline  imi)robahle. 

§  6.    Whether  or  no  (here  be  a  steadying  cause  of  the  sort  jast 
mentioned,  the  rate  of  interest  for  long  periods  —  decades  at  a 
time  —  depends  on  the  demand  for  capital  with  reference  to  a 
supply  which  is  constantly  and  (piasi-automatically  increasing. 
It  depends  on  a  race  between  accunuilaticm  and  imjjrovement. 
Accumulation  proceeds  fast,  and   i)romises  to  continue  to 
proceed  fast.     It  threatens  constantly  to  increase  the  su[)ply 
of  savings  and  of  capital  to  the  point  where  a  decline  in  the 
return  must  set  in.     So  ingrained  is  the  hai)it  of  accumulation 
among  the  prosperous  classes  of  modern  society,  that  it  seems 
to  proceed  irrespectiv(>  of  the  rate  of  interest.     Only  over  con- 
siderable  periods   and    aft(>r   a    long   disenchantment   will   a 
lessening  of  th(>  r(>turn  ch(>ck  its  unceasing  march.     How  soon 
and  how  completely  such  a  relaxation  of  its  advance  would 
take  place,   we  camiot   say.     Neither  can   we  say  with  what 
gradations  the  decline  in  interest  itself  would  take  plac(\      If 
there   is  a   geiKTal   and   far-reaching  i)rincii)l(>   of  diminishing 
returns,  the  process  would  be  a  slow  one  ;   nay,  if  that  principle 
is  of  indefinite  a|)plica(i()n,  interest  never  would  quite  disai)pear, 
however  vast  nccumulution  miglit   lu>.     If  there  b(>  not   this 
supposed  possibility  of  always  using  more  and  more  savings 
in  productive  investment,  (h<>  stage  of  vanishing  interest  would 
be  reached  at  a  comparatively  early  date.     .VII  this,  on  the 

supposition  that  accunmlation  proceeds  irrcspect  ive  of  the  return, 
and  that  liiere  .-ire  no  improvements  in  the  arts.  If  tiie  reason- 
mg  of  the  preceding  sections  is  sound,  accumulation  will  be 
relaxed  long  l.ef,.re  the  return  Viini-he- ;  yet  reluctantly  ;md 
haltingly,  and  with  a  constant  pressure  from  the  continuing 
offerings  of  those  who  now  enjoy  a  savers'  surplus. 


1 


^■^" 


■wmBi^fl— ^^^sirtspfwp' 


^&iFFwm 


28 


THE  DISTRIBUTION  OF  WEALTH 


I    I': 


In  one  respect  there  will  always  be  an  opening  for  the  use 
of  additional  savings,  even  under  static  conditions,  —  namely, 
through  the  increase  of  population.  Additional  laborers  need 
to  have  an  additional  supply  of  the  familiar  kinds  of  apparatus. 
Wry  few  modern  countries  have  stationary  numl)ors.  France 
is  the  only  large  one  whose  population  fails  to  grow.  In  most 
communities,  numbers  increase.  In  so  far  there  ;s  obvious  op- 
portunity lur  the  employment  of  more  savings. 

But  in  the  main  the  way  in  whicli  the  increase  of  savings 
can  find  escape  from  its  difficulties  is  through  the  parallel 
advance  in  the  arts,  calling  for  more  and  more  elaborate  forms 
of  capital.  Savings  in  civilized  communities  easily  outstrip 
the  growth  of  numbers,  even  in  a  country  of  rapidly  swelling 
population  like  the  United  States.  Hence,  to  repeat,  the  race 
is  between  improvements  and  accumulation.  Given  continued 
improvements  calling  for  inore  and  more  elaborate  plant,  — 
more  of  time-consuming  and  roundabout  applications  of 
laijor, — then  savings  can  heap  up,  and  a  return  still  be  secured 
bj'  the  owners  of  capital.  Such  has  been  the  course  of  indus- 
trial history  for  the  last  century  and  a  half.  Such,  also,  is  ajv 
parently  to  be  its  course  at  least  for  another  generation  or  two. 


i'  i 


CHAPTER  40 
Interest,  fuktheu  Considered 

§  1.  Spendthrift  loans,  though  far  less  important  in  modern 
times  than  those  for  use  in  production,  continue  to  play  a  part. 
Individuals  and  public  bodies  still  borrow  to  satisfy  needs  of 
the  moment,  hoi)ing  to  repay  in  the  future  from  some  extraneous 
resource.  Pawnbrokers'  loans  are  of  this  sort  on  a  petty  scale ; 
the  borrowings  of  nations  for  the  contluct  of  wars  are  so  on  a 
great  scale. 

Such  loans  introduce  no  new  principle  concerning  the  play 
of  demand.  There  are  gradations  in  the  demands  of  the 
various  borrowers.  Some  have  pressing  needs,  or  are  much 
tempted  by  opportunities  for  immediate  expenditure.  Others 
have  needs  less  pressing,  or  more  :;aution  and  foresight.  If  we 
suppose  a  fixed  supply  of  present  means,  such  as  the  lenders 
offer,  and  suppose  loans  of  this  kind  to  be  the  only  ones,  the 
rate  of  interest,  under  effective  competition,  will  settle  at  the 
point  determined  by  the  least  eager  among  the  spendthrifts,  — 
by  marginal  utility  among  the  borrowing  consumers.  If  we 
suppose  this  demand  for  loans  to  be  added  (as  in  fact  it  is)  to 
the  demand  for  productive  uses,  the  modification  of  the  con- 
clusions reached  in  the  last  chapter  will  be  simjjly  a  (luantita- 
tive  one.  There  is  an  additional  opening  for  the  lenders, 
but  no  essential  alteration  in  the  gradations  of  demand  or  in 
the  play  of  the  forces  by  which  the  emerging  rate  of  interest  is 
settled. 

The  most  striking  peculiarity  in  spendthrift  loans  is  that  so 
often  there  is  no  such  thing  as  unf(>ttered  competition,  no  such 
thing  as  a  prevalent  or  competitive  rate  determined  at  the 
margin.  The  ignoranc(>  and  the  necessities  of  borrowers,  their 
inability  to  pause  and  inquire  what  terms  can  be  got,  frequently 

20 


(  ■   -1 


i 

t 

11 


30 


THE  DISTRIBUTION   OF  WEALTH 


II 

i 


cause  "unfair  rates"  and  ''extortion,"  — phrases  whieh  signify 
hero,  as  they  coniinoaly  do  ulso  wiien  usetl  of  the  prices  of 
goods,  that  the  rates  whicli  would  result  from  active  conipoti- 
tion  are  not  in  fact  attained.' 

Consider  pa\vnhrok(>rs'  loans,  for  example.     The  horro.-ers 
are    usually  in   immediate^    need,    often   timid,   ignorant,    and 
anxious  for  pri\-acy.     They  an*  likely  to  aeeept  hurriedly  such 
terms  as  are  offered  at  the  tirsL  place  where  application  is  made. 
So  strong  is  the  general  belief  that  the  resulting  bargaiiLs  bring 
an  undue  advant;  ge  to  shrewil  and  unscrupulous  lenders,  that 
public    authority    in    civilized    countries    often    regulati's    the 
transactions.     Sonxetimes   the   rate   of   interest   is   prescribed, 
that  is,  a  maxinnnn  is  set ;  and  ih^tailed  regulations  are  made 
for  the    ki'epiug  of  books  and  accoiuits  and    coacerning  the 
mode  in  which  the  (;ventual  sale  of  pledges  shall  take  place. 
Sometimes,  as  in  France,  public  pawnbrokers'  shops  are  estal)- 
iished,  where  advances  are  available  at  reasonable  rates  (that 
is,  at  something  like  the  comi)etitive  market  rate),     .\llowance, 
of  course,  must  be  made  for  the  risks  involved,  and  for  the 
heavy  exi^ens  -^  of  administration.     A  rate  of  ten  or  twelve  per 
cent  on  pawnbrokers'  loans,  after  account  is  taken  of  exp»^iises, 
amounts  to  only  a  moderate  net  rate.     But  mu.  h  more  i-  often 
charged  than  suffices  to  pay  all  expens(>s,  to  offset  risk.-,  and 
to  yield  a  sufficient  return  for  the  lender's  capital  and  labor; 
hence  the  occasion  for  regulation  by  public  authority. 

In  most  semi-civilized  communities,  the  viHage   usurer    wis-. 
lends  at  high  rates  to  the  improvident  or  '.•■eessiioiis.  i>  _,  la- 
miliar  figure.     The  peasant  of   Hindustan     iv.-s  upon  a    ■."- 
narrow  margin.     His  crops  barely  su(H<v   t,,   f,.^.,i  i,i„   ,^.,^ 
until  the  next  season's  crops  are  ready,  and  m     the  e.,       i   ^ 
poor  seas(m  he  nuist  either  l)orrow  or  star'.         Vot  mm-       m- 
often  necessitous ;    he   is  often  improvideir         \i     n.    rmxr--ui' 
of  a  daughter  or  at  a  funeral,  he  will  squaa-.    -  sma~  .,uii-   ni 
of  proportion  to  his  means,  and  wjl!  borrow    ...    -i    ^-^~   ^ 
raise  the  money, —  a  heedlessn(«.s.s  of  th.-  tutun    iw^gmrrn'm^nm- 

»  Compare  what  wm  said  in  Hook  II,  (1  ipier  10.  S        u     lau  \m~u.." 


ir»«.'£T:!XZ  •'i'l' 


INTEREST,  FURTHER  CONSIDERED  31 

to  the  calculating  Yv  estern  observer.  The  usurer  has  him  in  his 
clutches.  So,  also,  it  was  in  old  day.s  with  the  fellaheen  in  Egjpt 
One  of  the  lx)ons  which  the  English  achniuistratioii  in  Egypt 
has  brought  the  nations  is  the  establishment  oi  a  semi-public 
bank  which  has  undertaken  to  displace  usury  by  offerin-  loms 
at  competitive  rates.  In  many  parts  of  Europe",  in  Austria,  in 
Ireland,  >n  Russia,  the  lender  of  small  su>ns  to  agricultural 
producers  is  a  usurer;  that  is,  he  is  removed  from  the  influence 
of  comiK-tition.  he  lends  to  poor  and  ignorant  persons,  and  he 
exploits  the  possibilities  of  the  case. 

In  medi.'val  times  the  arceptun<-e  of  interest  bv  !■  nders  was 
prohib.te.1,   at   least    for  Christians    (the   prohibition   was   by 
church  law,  a.ul  applied  to  Christians  only;   hence  the  position 
of  the  Jews  as  money  lenders).      To  receive  from  tlu;  borrower 
more  than  had  be.>n  lent  him  was  thought  unrighteous      The 
explanation  of  this  attitude,  .so  different  from  the  pres(.nt-day 
acceptance  of  interest  as  a  matter  of  course,  is  probably  in  the 
mam  that  during  the  .Middl,>  Ages  borrowing  was  chiefly  for 
consumption.     When    the    borrower   uses    loans    for   his 'own 
gamful  oiH'rations,  the  l)argain  b.>tween  him  and  the  lender  as 
1o  mterest  seems  natural  and  ecpiitable.     But  where  he  j.  in 
need,  and  uses  the  loan  to  satisfy  pressing  wants,  the  lender's 
reciuirement  of  interest  has  .an  a.spect  of  harshness.     Moreover, 
m  medieval   times  eompctilion  and    market  rat(>s  of   interest 
hardly  existed,     rfuch  loans  as  were  contracted  were  often  on 
terms  fix(>(l  by  the  necessities  of  the  individual  bonower.     As 
the  division  of  labor  and  11,,.  us<.  of  money  spread,  as  industrv 
became  more  complex  and  the  instruments  of  production  more 
"...bile,  loan-  for  production  b.-cune  common;    and  with  this 
change  came  a  change  in  men's  point  of  view  reganling  interest 
The  exceptions  to  the  original  strict  rule  of  the  canon  law,  (he 
excuses  and  explanations  for  <leparting  from  it,  the  nominal  re- 
tention  of  th<.  prohibition  with  growing  practical  relaxation,  the 

■' ■■■•'■=' "^  "•' "'•'■'■^i- ;i '•Hiiiiiai' ami  normai  pile- 

nomemm.  -  all  this  illustrates  the  process  by  which  m.-n  slowly 
adjust  their  prepot<sessious  to  new  ways  and  new  institulions. 


32 


THE  DISTRIBUTION  OF  WEALTH 


I 

t 

i 

I.  j: 


■  \ 


§  2.  One  form  of  loans  for  consumption  remains  of  great 
quantitative  importance  in  rnodern  times,  —  j)ul)lic  borrowing 
for  wars.  The  drain  on  savings  for  this  purpose  has  been 
enormous.  Every  groat  struggle  has  caused  hundreds  of  mil- 
lions, even  thousands  of  millions,  to  be  borrowed  and  s(juaiidered, 
—  squandtTcd,  that  is,  so  far  as  concerns  the  economic  conse- 
quences. 

The  conditions  of  demand  for  this  sort  of  use  are  highly  in- 
elastic.    When  a  nation's  blcnxl  is  up,  the  means  for  prosecut- 
ing a  war  are  demanded  at  any  price.     Hence  a  great  war  often 
causes  a  rise  in  the  rate  of  interest  which  endures  for  years, 
perhaps   for  a  generation.     The  Napoleonic  wars,  es[)ecially 
because   of   the   imge   loans    contracted    by  Great  Britain  to 
carry  them  on,  uiTectwl  the  current  rate  of  interest  through  the 
first  quarter  of  the  nineteenth  century.     In  the  .second  half  of 
that  century  then-  was  a  succession  of  wars  and  of  consi'quent 
Iwrrowings.  -  the  Crimean  War  of  18.')4-18r)5,  that  of  France 
and  Italy  against  Austria  in  18')<),  the  American  Civil  War. of 
18(il   180"),  that  of  Prus.iia  and  Italy  against  Austria  in  18()(), 
of  France  and  Cermany  in  1870-1871,  of  Russia  and  Turkey  in 
187tM87S.     Kaeh  caused  public  loans  to  be  contracted  at  home 
and  abroad,  uud  each  had  its  effect  on  the  investment  market 
in  the  world  at  l.-irg(>.     The  whole  series  tended  t«  Ijoister  up 
the  rate  of  interest  over  a  long  |)eriod.     No  doubt,  the  high  rate 
.served  in  i)art  to  bring  out    aviugs  that  otherwise  would  not 
have  been  maile.     In  so  far,  the  loans  cannot  Im>  said  to  have 
withdrawn  savings  from  pniductivc  use.     They  simply  made 
possible  larger  investments  by  individuals,  and  an  addition, 
virtually  in  perpetuity,  to  tlie  inoiicy  "capital"  and  the  |)it- 
manent  income  «if  the  leisure  class,     an  additicm  not  balanced, 
as  is  that  of  social  capital,  by  a  gain  in  the  productiveiies«i  (if 
lal)or.     Hut  in  large  jtarl  tiny  lurneil  to  waste  and  destruction 
sums  that    otherwise  would   hav-  been   u.sed  in  the  peaceful 
work  of  industry. 

S  A   Another  form  of  savings  used  in  investment  stamls  mid- 


way U'tween   those   for  production   in   the  stricf«'r 


seum«. 


md 


INTEREST,   FURTHER  CONSIDERED  33 

those  for  consumption.  This  is  investment  in  durable  goods 
suited  for  immediate  use,  of  which  dwelling  houses  let  for  hire 
are  the  most  important  type. 

The  hiring  of  a  dwelling  i)rinj>;s  :il)()ut  an  (>xehange  of  present 
means  for  future  means,  ami  the  (^mergence  of  a  premium,  in 
essentially  the  same  way  as  in  tlie  simplest  loan  at  interest. 
The  tenant  normally  pays  as  rental  a  sum  sufficient  to  reim- 
burse the  owner  or  landloril  for  repairs,  depreciation,  and  such 
charges  as  insuranc(<  and  taxes;   and  he  pays  him  in  addition 
a  sum  which  constitutes  a  net  income  to  the  landlord,  and 
which  is  the  inter(\st  on  his  investment.     (We  leave  out  of 
consideration  for  the  present  the  land  nn  which  the  dwelling 
stands;  its  relation  to  the  gro.ss  rental  will  be  considered  in 
the  next  following  chapters.)     The  landlord  at  the  outset  has 
present  means  or  savings  at  his  disposal.     -  the  sum  which  he 
applies  to  building  the  hou.se.     If  the  rental  whin,  he  receives 
were  just  enough  to  bring  him  back  this  same  sum,  covf-ring 
tho  eventual  return  of  his  capital  (as  well  as  repairs  and  other 
current  charges),  he  would  get  from  the  tenant  or  seric«s  of 
tenants  preci.sely  what  he  gave.     Hut  this  return  is  spread,  by 
iiLstallments,  over  a  long  time.     We  may  suppose  the  house. 
for  examj)le,  to  last  fifty  years,  being  worn  out  and  useless  at 
the  end  of  that  time.     The  full  repayment  (.f  tht«  capital  sum 
will  then  be  comi)leted  only  after  the  lapse  of  half  a  century. 
A  postponement  of  satisfactions  on  the  landlord's  part  is  nec(M- 
sarily  involvinl,  and  will  not  be  accepted  unless  Www  is  .some 
inducement,       unless  the  tenant  pays  more  than  enough  to 
repay  the  smn  «)riginally  invested ;  that  is,  unless  interest  in 
paid. 

Where  a  buihling,  or  indeed  any  other  concrete  form  of 
wealth,  is  expected  to  last  a  very  long  time,  depivciation  (that 
is,  the  gradual  recovery  of  the  capital  sum  iiw.'stcd)  i)lays  but 
a  small  part,  and  the  rental,  over  aitd  alMivc  rejtairs  and  ex- 
P<'!i-<'-,  i-  rniuli-  Hj)  iihiiti.  i  :;uiriy  -if  tllC  iiit.r«'4  tiiuim'.      J^iriiiiy, 

the    investor    should   always    fiice    the    fact    of    ilejircciation. 
Though  sum.-  forms  of  .lurable  consumer's  wealth,  like  a  few 
Vol..  II       » 


84 


THE  DISTRIBUTION  OF  WEALTH 


I. 


't 


l\ 


forms  of  producer's  wealth,  seem  to  endure  indefinitely,  decay 
and  depreciation  eventually  set  in.  In  many  cases  of  such  in- 
vestments, however,  it  is  pruljahlo  that  the  distant  future  when 
the  capital  sum  will  finally  have  to  be  replaced,  is  forgotten. 
The  landlord,  in  his  calculations  of  rentals,  will  often  reckon 
merely  on  interest ;  with  allowance  for  repairs  and  other  (!x- 
pen.ses,  hut  without  allowance  for  the  ultimate  replacing  of  the 
initial  investment.  In  regions  where  population  is  growing, 
this  sort  of  real  or  apparent  miscalculation  is  fostered  l»y  the 
exi)e(!tati()n  that  a  rise  in  the  value  of  the  land  will  offset  the 
depreciation  of  the  huilding,  —  u  phase  of  the  subject  which  is 
reserve*!  for  later  consideration. 

Turning  now  from  the  conditions  of  supi)ly  to  those  of  de- 
mand, we  find  a  situation  less  complex  than  that  as  to  the 
demand  for  producer's  capital.  The  demand  for  house  room 
and  the  like  is  similar  to  that  for  (»ther  i)resent  satisfactions. 
House  room  is  constantly  compared  with  other  utilities,  and 
exhibits  the  same  gradations  of  demand.  The  dwelling  yields 
shelter,  and  it  may  satisfy  the  Ir>ve  of  beauty.  It  ministers  in 
no  small  degree,  also,  to  the  love  of  distinction  ;  for  here  is  one 
of  the  nio.st  familiar  forms  of  display.  The  more  of  these 
gratifications  are  olTcre<l,  the  lower  will  be  their  marginal 
utility  and  their  price.  Sujipose  that  dwellings  were  the  only 
available  foim  of  investment,  and  that  all  llic  sums  saved  were 
turned  into  this  channel;  we  may  reason  that,  as  a  steadily 
increasing  sui)i)|y  "f  ^'wh  sources  of  satisfaction  was  offered, 
the  amounts  which  purcha.sers  would  pay  for  ,succes.sive  install- 
ments of  lliHu  would  grow  less.  Still  supposing  them  to  be 
the  only  Ioimi  of  iMvcstinent.  we  ni.<;  rcasmi  further  that  the 
decline  in  rent.ils  would  ii<»l  n>iise  tuvtil  investors  (those  build- 
ing dwellings  fi,r  jiin.)  rnnic  to  the  conclusion  that  it  was  no 
longer  \MMt(i  wliiii-  to  abstain  fiom  the  present  use  of  (heir 
means  in  the  procc'^s  of  providini'  Ikmim-  rninn  fur  tenants;  or, 
to  sfwak   more  carrJiiHy.   wl.m  thr  just   or  marginal  inv(>stor 


came  to  this  c(»n(lusion,     Tl 


oquiliiiriuiu  of  supply  and  demand. 


If  case  Would  again  be  one  of  tim 


Hi 


INTEREST,  FURTHER  CONSIDERED 


35 


Other  forms  of  consumer's  wealth  present  the  same  phe- 
nomenon. Pianos,  the  furniture  m  lodsings,  theatrical  cos- 
tumes and  fancy  dress,  carriages  for  hire,  —  all  illustrate  the 
principle.  In  these,  wear  and  tear,  and  allowance  for  deprecia- 
tion, play  a  larger  part  than  in  dwellings,  uiul  interest  forms  a 
8mall(>r  proportion  of  the  gross  rental.  The  civilized  man's 
repugnance  to  miscellaneous  and  indiscriminate  use  of  his 
possessions  sets  limits  to  the  spread  of  such  hiring  and  letting ; 
but  anything  which  by  custom  can  be  passed  readily  from  one 
person  to  another,  like  a  dwelling  or  a  piano,  may  cause  a 
return  to  arise  in  tlu;  way  of  an  interest  jjayment. 

Consumer's  wealth  of  a  durable  and  transferable  kind  thus 
offers  still  another  way  of  investing  i)resent  means  and  of 
securing  an  mterest  return.  Tlic  whole  mass  of  .savings  put 
aside  for  investment  is  to  be  compared  with  all  the  oiiportuni- 
ties  for  utilizing  them  -  in  production,  in  loans  for  consump- 
tion, in  ccmsumer's  capital.  They  combine  t(»  make  up  the 
total  demand  which  is  to  be  set  against  the  supply  of  savings. 
No  one  of  the  various  opportunities  can  be  sai<l  to  dominate 
the  others,  so  fur  as  the  rate  of  interest  is  conccriKMi.  Hut  they 
are  by  no  means  of  ecpial  (juantitative  iniixtrtance.  Except  for 
public  borrowings,  loans  of  the  si)endthrift  ty|w  are  compara- 
tively small  in  mixlern  communities.  Durable  forms  of  e(m- 
sumer's  wealth,  of  which  dwellings  are  typical,  present  a  much 
ampler  and  steadier  opjxirtimity  for  the  investment  of  savings; 
one  which  enlarges  puri  imssit  with  an  increase  in  poi)ulation 
and  in  general  j)rosperity.  The  operati(ms  of  production,  an<i 
the  pos-<ibility  of  im  reasing  the  elliciency  of  lai)or  by  applying  it 
elab(»rately  over  t  ime,  form  t  he  innst  important  opening  of  all.  I  n 
this  sense,  loans  forprodui-tion  may  besai<l  to  doiniriate  the  mar- 
ket and  to  settle  the  return  to  all  kinds  of  capital  and  iii\(wtment. 

§   1.    We  are  now  prepared  to  give  iv\  answer  to  a  set  of 

questions  sugg(>st(>d  at  an  earlier  stage,  which  have  to  do  with 

the  relation  of  producer's  wealth   to  ennsurner's  wealth,  and 

the  drHnitiou  of  ca|)ilal  '     Matter-*  nf  delinitiun.  though  not  in 

'  Spf  Book  I,  ("hnptpr  6,  |  3. 


3d 


THE  DISTRIBUTION  OF  WEALTH 


I  ill 


themselves  of  the  first  importance,  yet  repay  discussion,  because 
they  compel  reflection  on  the  essentials  of  the  things  defined 

Producer's  wealth  and  consumer's  wealth  are  similar,  in  that 
they  are  both  instruments.     Both  serve  to  provide  utilities  or 
gratifications.     They  differ  as  to  the  time  at  which  the  utilities 
will    emerge.     Producer's    wealth    brings   no    utilities   in   the 
present ;    all  of  its  effects  are  to  appear  in  the  future.     Con- 
sumer's wealth  brings  utilities  in  the  present.     But  not  all  of 
Its  utilities  are  so  brought.     It  sheds  them,  so  to  speak,  con- 
tinuously  throughout  its  existence.     The  longer  it  lasts,  the 
longer  will  tli(>  i)rocess  continue.     Some  of  its  utilities  are  thus 
also  future ;   and  th(^  mor(>,  in  proportion  as  it  is  durable. 

The  most  general  .statement  of  the  con<litions  under  which 
interest  arises  is  that  it  results  from  an  exchange  of  pres(  M 
things  for  things  futur...     This  proposition,  more  or  less  fore- 
shadow.Hl  in  tlu-  discussions  of  a  long  series  of  economists,  and 
>n  our  own  time  sharply  formulatnl  by  the  brilliant  .Vustrian 
economist,  Bohm-Bawerk,  applies  to  all  the  various  operations 
m  which  a  surplus  appears  for  him  who  makes  loans  or  advances 
It   applies   no   less   to  oix-iations   which    involve   consumer's 
wealth  than  to  those  which  involve  producer's  wealth.     From 
this  p„mt  ,.t  view,  the  .me  is  capital  as  much  as  the  other      In 
both  .-a-ses  true  int.Mest  arises;  due  to  th.>  fact  that  the  present 
ordinarily   ..utweighs  tl...   future   m   attni.-tivene.ss,   ami   that 
thos,.  who  have  present  m.-ans  at  .•..imnand  will  not  postp(.ne 
enj-niiient  of  thni,  unless  s„m,.  in.lu.Tinent  in  the  shaj)e  of 
prrmium  is  offeiv.l.     S.,  far  as  the  problems  of  .iistributi.m  arc 
'•<'"<<-n.e.l,    -uiisumer's    wealth    and    pnMlu.Tr's    wealth    thus 
present  similar  phenomena,     i^itlier  ..f  them  mav  fetch  interest 
and  .so  |,,„l  tn  11,,.  emergence  uf  a  leisure  chtss,       »  set  <.f  por^ 
sons  whn  hav.-  „„  i,„.oi„e  from  a.-cumulaUnl  means  and  who 
n«H|  not  work  fur  their  living. 

Th...igh  thus  sii„i|„r  in  tho  rssential  relations  .,f  present  to 
future,  11„.  two  forms  of  wealth  yet  pn.s,.,.t  .lifferen.-es  in  other 
-I      V-.      liit-rt    i„  an  «.t,vioUs  (iillrrence  in  the  nature  of  the 


social  advantage  s.<unHl  from  tl 


le  poss<'s«ioii  wi  pr«»w>nt  means. 


INTEREST,   FURTHER  CONSIDERED  37 

That  advantage,  in  the  case  of  producer's  wealtli,  is  found  in  the 
uicrease  in  the  productiveness  of  labor  because  it  is  applied  in 
the  "capitaHstic"  way.  The  deu.and  for  producer's  capital 
and  the  ability  of  the  users  of  capital  to  pay  interest  depend 
on  factors  which  do  not  bear  on  consumer's  capital  or  on  interest 
derived  from  consumer's  capital.  The  progn-ss  of  invention 
the  growing  effectiveness  of  larger  plant  an.l  uK.re  costly  tools' 
the  pos.sil)le  limits  to  the  increase  in  output  from  more  laborious 
preparation, -all  these  are  cpiestions  which  must  be  con- 
sidered with  r. Terence  to  cai)ital  in  the  narrower  sense,  and  do 
not  present  themselves  as  to  consumer's  wealth. 

§  T).    When  once  the  payment  of  interest  is  a  familiar  and 
accepted  fa<-t,  it  is  e.xtend.-d  to  all  ca.ses  where  present  means 
are  in  one  person's  hand  and  are  turned  over  to  another  p..r.son 
He  who  ha«  money  to  len.i  can  always  ^ot  interest  on  it      He 
who  borrows  must  pay  for  the  veriest  fraction  advanced  to 
luin  an.l  for  ev(.ry  day  of  th,.  advan.v.     Th,.  competition  an.l 
niteraction  of  a  highly  .l,.vel<.ped  banking  and  credit  system  is 
always  keeping  tlu-  ,H,ssessor  of  present  means  in  connection 
with  those  who  are  the  eventual  users  „f  capital  an.l  th<.  ulti- 
mate  employers  of  labor;    and  iatpn-st  can  be  eontinuouslv 
and  unfailingly  secured  on  ..very  s.-r.ip  of  <li.sp„.sable  cash. 

Here,  as  in  so  many  fields  „f  ee„u„mi.'  aetiviiv,  the  porsons 
directly  engag...l  are  little  aware  of  th..  sign.ficanee  of  their 
doings.     Tlie  prof<.ssi,)nal    rM.Mi.y  l..n.l..r   knows    by  .'very.lay 

<<xperi<.nc,.  that  I an  always  ^.-t  i.it.'n'st  o„  th.>  mon..y  he 

bfts  to  lend,  and  he  .•on.tnonly  tliiaks  of  it  as  •  earning"  i„t..'r..st 
He  wh.,  borrows  ae..,.pts  the  „..,.|  of  paying  inten-st  as  a  n.-ces- 
Hary  part  ..f  the  world  as  it  is.  and  .lo,.s  not  stop  t.,  think  that 
iw  own  .l.-mand  for  pres-nt  m..ans  i„  nr.l.-r.  say.  to  buy  a 
n.a.-hine  .,r  a  batch  of  mat..rials  ..r  wan-s  is  „ar)'..f  the  very 
Hituation  that  ..aus.s  a  n-turn  to  ti...  l.-nd,,.  („  aris...     .Just  oh 

' ''   *•"'  •''^''«'«"»  "f  ''''"T.  ca.'h   indivi.lnal   uork..r  has  n<. 

••onsciousn.'SH  of  th.-  part  h.-  plays  it,  iU,,  ,.nmp!.x  -rgani?  itior, 
of  in.h.stry;  jusi  in  tUr  adjustment  of  foreign  tni.le  each 
merchant   has  n..  i...tio»  ot  his  phu,.  in  the  mechanism,      so 


nv 


' 


^)    i 

fi 


38 


THE  DISTRIBUTION  OF  WEALTH 


neither  individual  lenders  nor  individual  borrowers  have  in- 
sight into  the  conditions  which  underlie  their  bargainings. 
Economists  are  often  twitted  with  being  theoretical  and  out  of 
^ouch  with  the  facts  of  industry.  Much  more  unpractical  is 
Che  attitude  of  the  average  business  man,  who  is  familiar  with 
but  one  small  corner  of  the  industrial  world,  contents  liiraself 
with  the  most  superficial  commonplaces,  and  knows  so  little  of 
the  larger  problems  of  economics  that  he  is  hardly  aware  even 
of  their  existence. 

§  6.   The  minimum  rate  of  interest,  on  the  best  security, 
differs  a  little  between  different  coimtries.     It  is  lowest,  and 
has  for  generations  been  so,  in  England.     It  is  sensibly  higher 
in  France.     Until  the  close  of  the  nineteenth  century,  it  was 
iiigher  in  the  United  States  than  in  most  European  countries ; 
but  of  late  it  has  gone  down  in  this  country,  and  has  tended 
to  be  nearly  as  low  as  in  England,  and  (juite  as  low  as  in  France 
or  CJermany.     As  a  rule,  it  is  higher  in  new,  prosperous,  and 
rapidly  growing  countries;    lower  in  old  countries  that  have 
long  been  prosperous.     The  explanation  is  mainly  to  be  found 
in    the   varying    conditions   of    supply    and   demand,   in    the 
race  between  accumulation  and  improvements.     In  a  country 
like  England,  which  has  enjoyed  complete  internal  peac«>  and 
high  industrial  prosperity  for  two  centuries,  accumulation  has 
iM-en  steadily  great,  and,  notwithstanding  the  periodic  sweep- 
ing away  of  large  amounts  through  loans  for  war  exiwnditure, 
there  has  been  almost  constajit  pressure  to  find  advantageous 
employment.     France  has  enjoyed  similar  prosperity  only  since 
the  clos««  of  tlic   Nai)olconic  wars,  and,   tliougli   long  a  rich 
cotmtry,  has  never  had  such  an  overflowing  suj)ply  as  England. 
Moreover,  her  luine  public  (lel)t  mow  n)Ughly  five  tliousand 
millions   of    dollars,   witli   an   annunl   interest   charge  of    two 
hun(lre<l  millions)  has  witlidrawn  from  proiluctiv.-  ns(>  a  larger 
part  of  her  people's  savin^v•'.     From  iMttli  countries  there  has 
Iweii  an  outilow    of    moiuy    nnnsi-    for    riveral    gj-nersMiins, 
through  investments  in  countries  where  the  demand  for  iiso  in 
production  has  bwn  great .    (lermany.  whose  industrial  advance 


H 


l» 


.    i 


INTEREST,  FURTHER  CONSIDERED 


39 


Since  1870  has  been  evtraordinary,  has  also  reached  the  stage  of 
fast  accumulating  resources,  and  of  overflow  to  other  countries. 
From  all  these  the  outflow  is  chiefly  to  the  newer  countries, 
whose  own  accumulations  are  not  yet  great,  whose  resources 
are  still  not  fully  utilized,  and  whose  opportunities  for  using 
capital  are  large  and  profitable.  Such  was  the  United  States 
throughout  the  nineteenth  century,  and  such,  notwithstanding 
the  amazing  increase  of  its  wealth  and  savings,  the  United 
States  in  some  (lejjroe  still  is.  Canada,  Australia,  South  Africa, 
Argentina,  Chili,  and  other  regions  liave  offered  advantageous 
fields  for  investments  from  older  countries.  Not  the  least 
striking  transfer  of  accumulations  has  been  that  from  the  older 
part  of  the  United  States,  along  the  North  Atlantic  coast,  to 
the  West  and  latterly  to  the  South  of  the  country.  From 
New  England  a  steady  stream  of  savings  has  flowed  to  the 
West,  and  has  enal)led  the  latter  section  to  provide  itself  with 
much-need(>d  capital. 

If  the  transfer  of  savings  from  one  country  to  another  took 
place  without  (juestion  or  hesitancy,  the  rate  of  return  on 
investments  would  be  the  same  in  both.  But  it  tloes  not  so 
take  place.  A  loan  to  a  person  at  home,  or  for  use  in  an  enter- 
prise at  home,  is  made  more  readily  than  one  to  a  strange 
country ;  and  sotnetliing  extra  must  \h'  paid  by  the  borrower 
who  has  to  deal  with  a  lender  on  the  other  side  of  a  political 
boundary.  Even  where  no  iiolitieal  boundary  has  to  be  crossed, 
but  only  a  less  familiar  region  entert'd,  the  same  sort  of  induce- 
ment must  usually  hv  olTered ;  as  when  an  EuMllislunan  is 
asked  to  lend  in  Canada  or  Avistralia,  or  a  New  iMiglaiulcr  in 
Texas  or  Oregon.  If  the  only  supply  in  new  and  r.ii)idly  grow- 
ing regions  wer(>  that  from  their  own  s.ivers,  the  rate  of  return 
there  would  be  considerably  higher  than  in  fact  it  is.  The 
inflow  from  older  countries  lirings  it  down,  thougli  not  to  a 
rate  as  low  as  that  prevailing  in  those  older  countries. 

The  same  Miit  of  diiurineo  arises  lietwron  familiar  and  un- 
familiar Investments  within  tlie  same  eoimtry  and  region.  A 
large  city  like  Boston  and  New  York  can  borrow  on  better 


40 


THE  DISTRIBUTION  OF  WEALTH 


!' 

'■■1  i 

it 


I] 


terms  than  a  small  town  or  municipality,  even  though  the 
latter  be  as  near  and  as  solvent.  A  large  railway  corporation, 
whose  securities  are  known  favoral)ly  to  a  wide  circle  of  inves- 
tors, can  sell  its  bonds  (that  is,  contract  its  loans)  more  ad- 
vantageously than  a  modest  enterprise,  even  though  the  latter 
be  no  less  secure.  The  activity  of  hankers  and  traders  and  the 
publicity  given  by  stock  exchanges  tend  to  lessen  differences 
of  this  kind,  as  they  do  those  between  countries ;  but  some 
differences  still  persist. 

lu  all  this  process  of  transfer,  and  tendency  to  equality  with- 
out the  attainment  of  complete  equality,  account  must  lie 
taken  of  risk.  Investments  in  a  raw  country,  promising  as 
they  may  be,  and  likely  to  yield  in  the  end  returns  larger  than 
in  old  countries,  often  contain  elements  of  uncertainty  in  each 
imlividual  ca.se.  Hence  something  in  the  nature  of  an  insur- 
ance premium  must  he  paid. 

Unattractiveness  tends  to  keep  high  the  returns  from  some 
forms  of  lending.  Pawnbrokers'  loans  at  best  are  made,  as 
has  already  been  remarked,  under  circumstances  which  prevent 
the  full  j'ffect  of  competition  from  being  felt  But  even  if 
made  at  rates  resulting  from  complete  knowledge  of  market 
pos.'-ibilities  by  l)orrowers,  they  would  iloubtless  be  higher 
than  ordinary  loans ;  since  such  lendings  are  not  in  social 
esteem.  Similarly,  dwellings  and  tenements  let  to  the  poor 
conunoiiiy  yield  a  return  higher  than  the  current  rate,  even 
after  allowing  for  the  risks  of  nonpayment  and  the  consider- 
able expenses  of  tnanagernent  and  c»)llection.  There  is  an 
aversion  to  dealings  that  involve  real  or  seeming  pressure  on 
the  necessitous.  Though  "philanthropy  at  four  per  cen^^ "  has 
caused  model  dwellings  in  cities  to  be  offered  to  the  |K)or  at 
rentals  that  yield  the  owners  no  more--  jw.ssibly  a  slwuh'  less 

than  could  be  secured  in  other  ways,  such  operations  have 
i";iched  but  a  small  part  of  the  field,  and  it  still  remains  true 
that  inv<Mtuu'iit>  <if  liii."*  l-ind  ordinarily  secun*  a  return  above 
the  current  rate.  For  reasons  of  the  same  kind,  business 
l)remises  used  in  .\merican  cities  for  the  retail  sale  of  liquor 


INTEREST,  FURTHER  CONSIDERED 


41 


secure  an  unusual  return :  a  certain  discredit  attaches  to  this 
sort  of  investment. 

§  7.   What  can  be  said,  in  conclusion,  of  the  justification  and 
social  significance  of  interest? 

In  the  older  English  books  on  economics,  interest  was  often 
said  to  be  the  "reward  of  abstinence."  The  phrase  has  often 
been  ridiculed:  a  Rotiischild  or  a  Vanderbilt  abstains  and 
deserves  a  regard  !  The  clear-headed  among  the  older  econo- 
mists probably  never  had  in  mind  a  moral  connotation  in  the 
phrase,  though  those  who  tried  to  popularize  their  theories  often 
did.  It  simply  tried  to  state  a  fact:  that  interest  arises 
because  the  accumulation  of  savings  and  the  making  of  capita! 
involve  "a})stinence."  The  person  who  has  the  present  means 
for  saving  and  investment  may  have  got  them  by  swindling 
or  robb(>ry ;  or  he  may  have  got  them  by  the  exercise  of  pro- 
ductive faculties  in  ways  advantageous  to  his  fellowraen.  Tlic 
act  of  saving  from  such  means,  again,  may  be  of  a  kind 
deemed  meritorious,  as,  for  example,  if  it  is  to  provide  for  wife 
and  children;  or  it  may  be  an  idle  heaping  up  from  super- 
fluous income,  animateil  only  by  senseless  rivalry  in  money 
making.  It  is  all  one,  so  far  as  concerns  the  strictly  economic 
theorem.  The  essence  of  this  is  that  present  i)ossession  is 
preferred  to  future,  and  that  present  nsources  will  not  be 
exchanged  for  future  resources  unless  sonic  induc«>ment  be 
offered.  Here  is  a  cold-i)loode(l  fact  ;  wlu>t!ier  it  squares  with 
moral  desert  is  quite  a  ditTerent  matter. 

Interest  seems  to  be  an  inevital)le  outcome  of  the  sy.stem  of 
private  property  and  free  exchange.  It  ap|)ears  in  early  and 
simple  societies,  mid  grows  in  voluiiie  and  importance  with 
the  greater  complication  and  eflicicncy  of  the  processes  of 
production.  At  the  outset  it  arises  chjcdy  in  the  simple  form 
of  loans  for  ctmsumption.  Wii  li  tlu>  devf-lopnient  nf  our  modern 
communities,  loans  lor  pnidnclion  have  conic  to  play  a  gr«>ater 
and  greater  part,  until  now  they  are  the  dominating  form. 
As  we  survey  tin-  tangled  conrsc  <»f  economic  history,  it  is  im- 
possibh'  to  see  h..\v  the  privale  accumulation  of  capital  under 


42 


THE  DISTRIBUTION  OF  WEALTH 


I. 


•:'•'[ 


II 


!  '4 


'f 


. 


the  stimulus  of  interest,  could  have  been  dispensed  with.  In 
so  far,  it  may  be  adjudged  to  be  just. 

But,  on  other  than  this  utilitarian  ground,  there  is  a  case 
against  interest,  resting  on  the  fact  of  inequality.  Those  who 
have  saved  and  put  aside  present  means  usually  have  had 
ample  means.  Saving  may  have  been  a  sacrifice,  in  the  sense 
that  postponement  of  present  enjoyment  is  commonly  irksome ; 
but  it  has  not  commonly  been  an  onerous  sacrifice.  Until 
within  recent  times,  accumulation  and  investment  were  pos- 
sible only  for  a  very  small  circle  of  persons,  who,  by  fair  means 
or  foul,  had  got  an  income  much  above  that  of  the  rest.  The 
beginnings  of  modern  capitalism  are  not  known  with  any 
certainty,  but  it  is  clear  that  in  its  earliest  stages  and  for  many 
centuries  only  a  small  knot  of  traders,  bankers,  city  folk  of 
unusual  prosperity,  had  any  part  in  accumulation  and  invest- 
ment. Though  this  situation  is  somewhat  modified  for  our 
own  day,  by  savings  banks,  life  insurance  companies,  coopera- 
tive societies,  and  all  the  multiplied  openings  for  investment  by 
the  masses,  it  remains  true  that  most  saving  is  done  by  the 
well-to-do  and  the  rich.  There  is  no  statistical  evidence  to 
prove  this  with  certainty,  but  such  evidence  is  not  necessary. 
Observation  of  the  familiar  facts  makes  it  plain  that  accumu- 
lation and  investment  are  now  matters  of  steady  concern 
chiefly  for  the  small  circle  of  persons  who  are  already  mem- 
bers of  the  possessing  classes  or  in  close  association  with  them. 

Interest-yielding  property,  thus  the  outconK^  of  inequality, 
itself  promotes  and  maintains  inequality.  Not  only  are  those 
who  receive  it  put  in  possession  of  greater  present  means,  but, 
what  is  more  important,  they  are  enabled  to  perpetuate  their 
own  and  their  children's  favored  position  as  earners  of  income. 
The  social  stratification  of  our  time,  the  si'paration  of  the  well- 
to-do  classes  from  the  noiiposscssirtg,  is  supported  and 
strengthened  by  the  income  from  existing  possessions.  The 
leisure  cliiss  has  t  inor«e(i  as  th»'  consequence  of  interest,  and 
tends  to  perpetuate  itself  and  enlarge  itself  through  the  receipt 
of  interest. 


I 


INTEREST,   FURTHER  CONSIDERED 


43 


To  repeat,  then,  interest  is  an  inevitable  outcome  of  private 
property.  The  whole  course  of  modern  industrial  develop- 
ment has  taken  place  under  the  system  of  property.  We  can- 
not perceive  that  it  could  have  taken  place  otherwise.  The 
phenomenon  of  the  leisure  class  has  never  beer  a  self-justifying 
one  for  the  unbiassed  observer.  It  must  be  accepted  as  part 
of  a  system  beneficial  on  the  whole,  and  at  all  events  indis- 
pensable ;  indispensable,  that  is,  in  the  past  and  for  the 
visible  future.  Whether  private  property  and  all  that  hangs 
thereby  will  last  into  the  indefinite  future,  raises  questions 
which  arc  much  witler  than  those  directly  connected  with 
interest,  and  must  be  reserved  for  discussion  at  a  later  stage. ^ 

'  Compare  what  is  said  briow.  Book  VI,  in  Chapter  54,  on  Inequality  and  lU 
Causes,  and  Book  VII,  Chapters  04  and  Co,  on  Socialiam. 


CHAPTER  41 
Overproduction  and  Overinvestment 


'I 

r 
I 


tilt' 


i 


ll 


fl. 


§  1.  The  present  chapter  is  in  part  a  digression.  The  sub- 
ject of  overproduction  runs  across  more  tlian  one  part  of  eco- 
nomic theory.  It  is  connected  with  prol)iems  of  production 
aid  of  value  as  well  as  with  those  of  distribution.  The  usual 
reasoning  about  it  touches  more  especially  on  the  possibility 
of  overinvestment,  and  so  on  the  determination  of  the  return 
to  capital.     Hence  it  is  conveniently  taken  up  at  this  point. 

"Overproduction"  may  mean  various  thin(2;s,  and  the  ques- 
tion whether  there  can  be  overproduction  is  accordingly  to  be 
answered  in  various  ways.  Let  us  consider  first  the  widest 
use  of  the  term  :  general  overproduction  beyond  what  men 
can  use.     Is  such  a  thing  possible? 

The  negative  answer  commonly  given  by  economists  rests 
on  the  extensibility  of  human  wants.  It  is  true  that  the  bare 
physical  needs  of  man  for  food,  clothing,  and  shelter,  are 
satisfied  with  ccmiparativcly  little.  If,  with  a  possibility  of 
further  supplies,  only  more  of  plain  food,  .simple  clothing,  dry 
shelter  were  added,  llicre  would  soon  be  an  excess  beyond  men's 
wants.  But  by  varying  the  supplies,  satisfaction  can  be  added 
almost  indefinitely.  Refine  the  food,  elaborate  and  vary  the 
clothes  and  the  house,  and  there  .seems  to  be  no  limit  to  what 
can  be  enjoyed.  .\s  Adam  Smith  remarked,  "the  desire  for 
food  is  limited  in  every  man  l>y  the  narrow  capacity  of  the 
human  stomach  ;  but  thi'  desire  of  the  conveniences  and  orna- 
ments of  building,  dress,  equipage,  and  household  furniture, 
seems  to  have  no  limit  or  cert:iin  boundary.''       Nothing  is 

>  VVialtli  of  Nations,  Book  I.  Chnptcr  11.  Part  II;  Vol.  I,  p.  105  of  Can- 
nan's  edition. 

44 


i 


OVERPRODUCTION  AND  OVERINVESTMENT  45 

more  extraoidinary  than  the  ease  with  which  a  man  who  begins 
with  a  smali  income  and  modest  enjoyments,  accommodates 
himself  to  larger  means,  finds  new  openings  for  expenditure 
which  soon  crystallize  into  "needs,"  and  complains  of  a  "high 
cost  of  living"  which  merely  reflects  his  own  habituation  to 
growing  comfort  and  luxury.  All  this  is  the  result  of  variety, 
—  through  the  stimulation  of  new  wants  and  the  discovery  of 
new  ways  of  satisfying  the-.  The  great  increase  of  productive 
power  during  the  last  century  or  two  has  meant  necessarily  a 
diversification  of  industry  and  a  constant  resort  to  new  things 
or  new  refinements  of  things  familiar.  Many  articles  which 
were  formerly  luxuries  are  now  everyday  comforts ;  and  many 
which  were  fcmerly  comforts  are  now  deemed  necessaries. 

It  is  true  that  one  of  the  wants  to  whose  satisfaction  addi- 
tional means  are  turned  is  the  mere  love  of  distinction.  Many 
things  are  valued,  partly  or  wholly,  for  the  simple  reason  that 
they  are  symbols  of  supposedly  higher  social  station,  —  stiff 
linen,  evening  dress,  horses  and  carriages,  lavish  entertainment, 
yachts,  palaces.  The  expenditure  for  these  is  perhaps  waste': 
waste,  that  is,  in  the  sense  that  the  satisfaction  from  them  is 
elusive.  On  tiie  otlur  hand,  this  very  satisfaction,  resting  on 
the  instinct  of  emulation  and  ostentation,  is  one  of  the  most 
universal  in  mankind,  and  has  been  a  powerful  stimulant  to 
productive  activity.  So  far  as  the  problem  of  overproduction 
is  concerned,  it  matters  not  how  great  or  enduring  is  the  en- 
joyment .secured,  how  far  proporlioiiate  to  the  expenditure  in- 
volved. It  suflices  that  :is  in  fact  men  are,  their  wants  of  all 
kmds  — for  physical  comfort,  for  aesthetic  and  intellectual 
gratification,  for  variety  and  anuisement.  for  ostentation  and 
display— are  indefinitely  extensible,  and  that  there  is  no 
danger  of  producing  more  than  they  will  at  least  think  they 
^ant. 

§  2.  It  is  not  in  this  general  sens(>,  however,  that  "over- 
production" i.s  rommutily  sivokcn  of.  Tioubir  arises,  it  is  con- 
tended, not  from  the  production  of  more  things  than  can  be 
used,  but  from  ..le  production  of  more  things  than  can  be  sold 


4d 


THE  DISTRIBUTION  OF  WEALTH 


' . 


!{ 


1 


cU  a  profit.  The  trouble,  it  \s  said,  is  one  peculiar  to  our  modern 
capitalistic  society,  which  finds  itself  in  difficulties  because  of 
its  very  achievenieuts.  More  is  produced  than  can  be  dis- 
posed of  to  the  capitalists'  advantagi;,  and  loss  ensues  from  the 
very  operations  which  were  designed  to  bring  profit. 

This,  of  course,  is  possible  for  anyone  industry  and  any  one 
commodity.  It  is  entirely  ('onceival)le  that  more  l)icyeles  or 
more  silks  should  be  produced  than  could  l)e  sold  at  a  profit. 
The  case,  though  not  the  usual  one,  occurs  frecjuently  enough  to 
be  entirely  familiar.  Mistakes  and  miscalculations  will  occur. 
But  the  remedy  seems  simple  anil  automatic.  If  more  is  pro- 
duced of  any  one  thing  than  can  b(>  sold  on  profital)le  terms, 
the  production  of  that  thing  will  be  diminished.  Sooner  or 
later  —  perhaps  after  a  considerable  interval,  if  the  ojM'rations 
involve  large  plant  —  sonu^  of  the  producers  will  witlulraw, 
supply  will  lessen,  price  will  rise,  and  the  overproduction  will 
cease. 

But,  it  is  maintained,  this  avenue  of  escap<'  is  not  available 
if  all  industries  are  pressing  masses  of  giuxls  on  the  market  at 
the  same  time.  If  indeed  a  few  industries  only  are  producing 
beyond  the  imiiit  of  profitable  sale,  lalM)r  and  I'apitul  can  1hi 
and  will  In?  transferred  to  others  not  thus  enibarrassed.  But 
if  those  otlwrs  are  in  the  same  quandary,  there  is  no  such 
remedy.  And  the  tendency,  it  is  sail,  is  for  all  imlustries  to 
be,  if  not  |M>nnanently,  at  h-ast  recurrently  and  periodically,  in 
the  stage  of  |>roduction  beyond  the  point  of  profit.  Modern 
l>lHnt  and  machinery  pours  forth  consumaiile  conunodities  in 
huge  quantities.  True,  while  the  machinery  is  in  the  process 
of  making,  there  is  demand  for  iron,  timber,  and  other  things 
used  in  nuiking  plant,  and  there  is  |)rofit  in  producing  them; 
and  while  the  machinery  is  in  the  first  stages  of  being  uhihI, 
there  is  di'inaiid  for  materials  like  coal,  W(M)I,  cotton,  and  the 
like,  nnd  profit  agaiit  in  |)roducing  these.  But  when  the  con- 
sumable article  -  clothing,  say  --is  liimlly  put  on  the  market 
m  VHMt  quantities,  it  cannot  be  sold  on  protitable  terms,  There 
ia  uvcrpruducliun,  stoppage,  and  shut-down,  reaction  in  turn 


OVERPRODUCTION  AND  OVERINVESTMENT         47 

on  the  making  of  plant  and  materials,  cessation  in  the  indus- 
tries which  proihice  those,  and  general  depression.  The  recur- 
rence of  cornmcrcial  crises  is  thus  ascribed,  in  part  at  least,  to 
recurrent  ovcrpnuhiotion. 

In  all  this  reasoning  there  is  confusion  of  two  essentially 
dilTerent  tiiinfts:  on  the  one  iiand,  invcstim-nt  beyond  the 
point  where  a  return  to  capital  can  be  maintained;  on  the 
other  hand,  production  beyond  the  |X)int  where  a  market  for 
goods  can  be  found.  The  first  of  these  is  quite  conceivable, 
tiiough  highly  iMiprol)able.  Tiie  second,  so  long  as  human 
wants  remain  extensible,  is  not  conceivaiiie. 

L(<t  it  l)e  supposed,  by  way  of  putting  the  problem  in  its 
extreme  ft.rm  (and  it  \<  in  this  way  tha'  a  question  of  principle 
IS  best  tested)  tliat  accumulation  and  investment  go  on  by 
leaps  and  lM)unds;  that  plant  and  machinery  are  indefinitely 
nuiltiplied,  and  that  consumable  commodities  are  nmltiplied 
in  profMjrtion.     Wliat  course  of  events  will  ensue? 

iirst,  |)urchasing  power  or  "m<mey'  (to  put  it  briefly)  is 
turned  to  tlie  buying  of  plant  and  machinery,  and  of  materials 
for  making  these.  It  is  no  longer  turned  to  the  things  formerly 
enjoyeil  liy  thosi>  who  have  become  invstors.  TIk  re  is  a  cessa- 
tion, or  great  Macki-nirig,  of  "luxurious  .xpenditure,"  With 
this  change  in  <l  niand,  tSere  (•n>ues  a  e(»rre-i)onding  change 
in  the  direction  of  pnxluctiun.  The  nnu-liine-tnaking  in  'ustries 
will  Ik-  profitable,  and  the  luxurv-inaking  indu-f  ries  improfitable. 
I.alKir  wil  be  turned  fn.iu  the  cue  to  the  other.  The  fallacy 
of  supiH>sing  that  lalx.r  will  be  len^  employed  because  of  a 
<liminution  of  luxurious  expenditure  has  been  exploded  over 
and  over  again  '  Saving  and  investment  simply  mean  the 
employment  of  labor  in  a  dilTerent  way. 

Before  long,  h.twever,  the  p'ant  and  machinery  must  Iw 
u-^ed  ;  that  is,  turned  to  makini;  more  consumable  things.  What 
sorts  of  consumable  things  will  be  in  demand"  N<.t  such  as 
are  .-{ij^^pf;-.:.  »,,  {jj^.,!,.jj,.j;,.j^  ..,' j.-^.j_j_^i-_^  ^^^^  I  ,.,^.,.,.„  ipreMUieiniy, 

the   well-to-d»)).     These,   by   ^up^»osition,    no   longer   buv    for 


'  rompan'  Chaiitcr  r»l.  |  2. 


48 


THE  DISTRIBUTION   OF   WB:ALTH 


I 
I     ■ 


IM 


\ 


enjoyment ;  at  all  events  they  reduce  such  expenditure  to  the 
miniinuu).  The  laborers,  however,  have  passed  no  se  Menying 
ordinance.  For  connnodities  adapted  to  their  needs  there  is 
an  unlimited  market.  To  l)e  sure,  in  order  to  induce  purcha.se, 
thiuRs  must  h(>  of  the  sort  they  fancy.  But  there  is  no  diffi- 
culty in  disposiuR  of  poods  of  1l:is  sort,  offered  cheap  enough. 
I'ntil  the  ina.Hs  of  iiiiiiilcind  c(imc  to  he  in  va.stly  more  pros- 
perous condition  than  has  been  dreiuned  of  in  all  the  Utopias, 
an  in(i(  liiiitcly  exteiisihie  market  can  he  found  for  fi;(M)ds  adapt<><l 
to  their  tise. 

Hut,  to  np.-at,  the  things  sold  to  laborers,  as  the  quantity 
of  them  increases,  nuist  be  offfred  at  a  lower  price.  If  the 
whole  process  of  enormous  saving  and  api)ropriately  modified 
j)rodurlion  be  rarried  on  relrntlessly,  in  tlu-  end  all  the  goods 
for  laborers  use  will  be  sold  at  ii  los-t.  There  will  1m>  universal 
overi)rodu(tioii  of  the  kind  which  those  maintaining  the  |H)s- 
sibility  have  in  mind,  prodmlion  not  indeed  beyond  the 
possibility  of  sale,  l)Ul  beyond  the  possibility  of  sale  at  a  profit. 

The  real  cauM'  of  difliculty,  iiowever,  is  eviilently,  not  over- 
production, liut  overaccumulntion  and  overinvestment.  Mor' 
things  an-  being  advanced  to  the  l.tUirers  than  they  reprtHluce. 
The  essence  of  the  proress  of  capitalist ii'  investment  is  that 
advances  are  constantly  being  ncide  to  laborers,  imd  that  tlu» 
lalKirers  an*  constantly  p'  xlucing  more  than  ha-^  Ikmmi  turned 
over  to  them.  Tlu'  >uppo>(d  increase  of  mivings  and  the 
decline  in  luxuriou-'  r\i><'ii(Iituri'  bring  it  alH)Ut  that  gi.ater 
ainounls  are  In  in)'  P'i'l  'o  lalM»rer>^  tlmi\  befon'.  To  put  it  in 
anotlx  I'  wa.\  :  brim,  ihi'  proci's,s  lH-giii>i,  part  of  thi-  lidiorers 
are  engaged  in  making  fommoditics  for  tm-  capitidists'  eon- 
siiniption,  and  part  fni  ihi-  •■onsuni|ition  of  tin-  lalMinrs  them- 
.'  I  IS.  Aftri  ihe  inoiM'Ns  !•>  eom|»li'ted,  alt  t!ie  l.il«»rers  (or 
\irtu.'dl\  all)  arc  engaged  in  making  gooiN  I'oi'  each  other,  and 
non<  (oi'  only  a  few)  are  engaged  in  making  ginids  for  capi- 
t.:ili>.ts,  Tlii'ii  tlii>  JjiIhiiitm  wjil  Ih>  roiiMMinintt  Uiore  than  they 
P  j<rodui'i',  iind  no  niiirn  t<»  capital  c;iii  emerge. 

The  vel.\  statement  of  this  result,  and  of  the  steps  by  which 


\ 


(JVEHl'HODUCTION   AND   OVERLWJOSTMIiXT  49 

it  is  reached,  shows  how  iinprobablo  it  is.     The  thing  is  con- 
ceivable, but  so  improbable  tluit  it  may  be  declared  virtually 
inipossii)le.     It  assumes  that  saving  and  investing  go  on  blindly, 
and  (juite  irrespective  <»f  any  return.     Now,  as  has  been  pointed 
out  ill  the  preceding  chapters,  the  connection  bi'tween  accumu- 
lation and  interest  is  not  a  .simple  one     Hut  it  is  aiwurd  to 
suppose    that    accumulation    would    eoiitinue    unabated    if    it 
resulted  in  no  return  at  all.     Tin"  very  sort  of  pressure  which 
is   sup{)osed   to   liring  about   this   universal   disappearance  of 
profit,    would    l)ring  quasi-automatically   its   own    relief.      As 
interest  fell,  more  and  more  of  the  well-to-do  would  conclude 
they  might  as  well  .si)end  as  invest  ;  would  l)uy  hou.ses,  pictures, 
automobiles,   champagne,   and   would   cause  laiior  to  turn  to 
making  such  things.     A  Iml.uice  would  in  due  time  be  restored, 
by  the  making  of  less  goixls  for  lal)orers'  consumption  and  by 
the  return  of  profit  and  interest  in  all  l)ranches  of  production. 
The  extent  to  which  the  process  of  continuing  investment 
could  Im>  carrii'd,  and  the  nearness  of  the  eventual  cessation  of 
return,  would  dep«'nd  on  the  elTert  of  increasing  capital  on  the 
productiveness  of  industry.     As   was  noted   in   the  preceding 
chapters,  Home    economists    ItMcvc    that  increase    of    capital 
means  increase  of  production  wilhout  limit;   with  an  unfailing 
incr<'a.se  in  the  output,  though  at  .a  diminishing  rate.     If  this  be 
the  ca.se,  !i  return  on  capital  will  always  be  -ecured,  however 
great   the  nisli  of  accumulation.     1   have  intimated  my  own 
view  that  the  gain  in  ellir'icucy  from  tlie  application  of  more 
savings  and  the  making  of  more  cipital,  is  not   automatic  or 
certain,  but  dipends  on  tin'  progress  of  inventiun.     However 
that  may  be.  it  is  agreed  on  ail  liaiuls  thai  a  grcit  pi.  ssiire  of 
capital    seeking   employment    will    lessen    the   return;     and   a 
progressive  lessening  of  the  return,  or  dci'line  in  interest,  will 
liMiig  pro  laiito  the  ^nme  elTccI  as  disippearance  of  the  return  ; 
it  will  check  accumulation  ami  so  bring  its  own  n  ;ni'dy. 

liiHllHTtUr,  iiiit-  uf  t!:e  ;;!:!!:;!   .if  ihr  ;.,i(i.iii,sts,  tri«  .i  to  eApiiiiii 

criHes  by  a  theory  of  overpnuluction  very  -inular  to  ili.it  just 
considenHl  :   a  theory  wiiich  nuulv  crise;  an  inevitiM.   adjunct 

vol.     II         K 


50 


THE  DISTRIBUTION  OF  WEALTH 


i 


I 


i 


of  private  ownfrship  of  capital.  His  oxplanalion  has  l)een 
repeated  by  Marx,  and  by  other  socialists.  Tlio  well-to-do,  it 
is  alleged,  are  set  on  investing  and  on  inereasing  prcxiuction ; 
they  are  not  disposed  to  spend.  The  laborers,  on  the  other 
hand,  have  not  the  wherewitlial  for  spendinR.  Hence  proiluc- 
inp;  "^ower  tends  constantly  to  outrun  consuminK  power;  hence 
the  recurrence  !»f  crises.  The  answer  is  that  the  laborers  are 
quite  al)le  to  spend.  The  pro«'ess  of  investment  by  tlie  well- 
to-do  simply  means  that  (he  "consuminR  |X)wer"  is  turned 
over  to  the  !al>orers.  There  is  no  lack  of  consuniinR  jx)wer.  If, 
indeed,  this  process  goec.  to  its  limit,  if  the  investors  persist  in 
saving  willy-nilly,  the  ultinuite  result  must  be  overproduction 
in  the  sense  of  disappearance  of  |)rofit  or  interest.  But  thia 
111  iit  will  never  l)e  n>aehed.  Long  before  it  is  a|)proached,  an 
end  will  e  )me  of  the  excessive  I'lvestmcnt ;  demand  will  l)e 
readjusted,  and  the  various  .sorts  of  goods  will  Im>  turned  out 
in  su''li  apportiotunent  that  (barring  the  inevitable  oeciisicmal 
mistakes)  all  will  be  .sold  at  a  [irofit. 

This  analysis  of  extreme  cases  and  im|)ossible  hypotlieses, 
fancif\il  though  it  may  seen».  is  necessary  in  order  to  bring  into 
sharp  relief  what  is  really  meant  by  overproducticui  of  the 
kind  su|>p<>scd.  .\nd  it  has  more  bearing  on  the  actual  phtv 
nctmena  of  modern  life  than  it  apiwars  at  first  sight  to  have; 
Iwcan-e,  though  the  extreme  ca.sc  is  not  reached,  tendencies  do 
exist  which  suggest  it      Tn  these  attention  may  now  be  given. 

ft  '•\.  AccuHiulatioii  in  rni«lerii  limes  does  |)roeeed.  for  short 
periods,  blindly  and  almost  autoniiilicnlly.  Savings  ;ire  mad(! 
n.id  are  invested,  men  i^  because  the  li.ibil  of  I'.img  so  has 
become  ingr.iiiie>l  an\oiig  the  pftsscssing  chtsses  and  because 
th«'  n)eeliimi-.in  lor  the  (irsi  .step«.  in  investment  iias  been  so 
p<'rfecte.l,  -  publie  and  private  savings  banks,  investment 
bankirs,  stock  i-ompaioes.  nnd  the  like.  Hei\ce,  for  familiar 
and  approved  sorts  of  imilerlakinns,  there  is  always  availal>le 
"ca|>iiai'"  lin  terni'^  oi'  money)  widiout  jjmii.  .\nd  iiiere  is  a 
gnat  and  nearly  con'<t;in(  pressiui'  of  eom|M'tition  in  these 
undertakings,    and    a   tendency    toward    "overproiiiiction,"  — 


OVERPRODUCTION  AND  OVERINVESTMENT         51 

that  is,  toward  putting  on  the  market  more  goods  than  can  bo 
sold  at  a  profit.  Tiiis  tendency  is  not  i)eculiar  to  industries 
which  produce  commodities  for  laborers'  consumption.  It 
appears  in  any  well-established  industry,  or  rather  in  any 
industry  conductiiiK  its  operations  in  a  well-established  way. 
Here  competition  is  ever  active.  The  return  to  capital  is 
within  a  iiund-breadth  of  the  minimum  ;  there  is  constant  dan- 
ger of  something  like  "overproduction."  .\nd  this,  again, 
threatens  industrial  irregularity  and  uncertainty,  —  stoppage 
becau.se  of  di.sapi)earing  prolit ;  resumption  after  a  while  in 
the  hope  of  restored  profit ;  unwillingness  to  abandon  the 
investment  entirely,  yet  inability  t(»  maintain  it,  or  at  least 
inability  to  enl:irg(>  it,  at  a  profit. 

The  path  of  escape  from  this  danger  —  if  a  real  and  general 
danger  it  can  be  ctmsidered  —  i-s  obvious.  It  is  by  change, 
at  once  in  the  methods  of  production  and  in  the  direction  of 
production.  Change  in  the  methods  of  production  is  con- 
stantly taking  place  in  the  establish<-d  in<lustries.  .^o  l.iiig  as 
improvements  involving  more  ca|>ital  (that  is,  more  application 
jf  preparatory  lalntr  in  "rountlabout "  methods)  are  made, 
there  is  un  opening  for  a  return  mi  a  larger  investment.  Chatjge 
in  the  direction  of  produetidii  takes  |)liiee  by  variety,  by  find- 
ing new  things  to  satisfy  newly  awakened  wants.  OrnamentH, 
wall  pafwrs,  rugs  and  carpets,  tableware,  household  furniture, 
fruits,  —  there  are  iiosts  <»f  such  new  things  to  which  lalM)r 
has  been  turned  as  competitKni  has  thre.iletied  overproductictn 
in  the  stai>les  which  alone  were  familiar  a  few  generations  ago. 
It  has  sometimes  been  pessiinislically  said  that  .ill  the  inven- 
tions and  machinery  of  civili/af ion  have  not  improved  <»ne  whit 
the  lot  of  the  ni.iss  ,,(  mauKind,  Vet  he  who  will  ol.serve  what 
are  the  ki?ids  of  coniruodities  now  produced  for  tlie  masses, 
and  compare  them  with  the  >;|eniler  list  of  things  available  even 
for  the  richest  but  a  century  ago,  nui-t  see  how  mistaken  is 
the  .--tatemtiif.  !l  is  tnon-  nearly  true  that  the  toil  of  miwf 
men  has  f)ecome  tio  le-s.  Ci-rtain  it  is  that  there  lii«  been  i\ 
v««t  gain  in  the  abundancp  and  variety  of  the  go<Mi'»  which 


52 


THE  DISTRIBUTION   OF  WEALTH 


ti' 


f 


K 


yield  utilities.  The  mode  in  which  this  gain  has  been  secured 
without  "overproduction,"  thiit  is,  without  general  selling  at  a 
loss,  has  been  on  the  one  hand  by  invention  and  improvement, 
on  the  other  hand  by  diversification  in  the  articles  produced. 

There  is  thus  a  show  of  reason  for  the  statement  that  the 
capitalistic  system  of  production  bears  in  its  lx)som  the  seed 
of  its  own  destruclion.  The  constant  pressure  of  accumula- 
tion does  threaten  to  annihilate  profit.  But  it  has  also  the 
forces  of  recuperation,  —  invention  and  variety.  And  in  the  last 
resort  there  is  always  the  option,  sure  to  be  exercised  before  a 
real  breakdown  occurs,  of  ceasing  accumulation. 

§  4.  .\mong  individual  industries,  .some  set>m  to  be  more 
than  others  in  danger  of  occasional,  even  of  recurrent,  over- 
production;  that  is,  of  such  large  output  that  they  must  sell 
at  a  lo,ss.  Industries  of  a  familiar  kind,  which  use  a  very 
large  plant,  seem  to  be  in  this  case;  es|)ecially  if  they  are  sub- 
ject to  seasonal  irregularities  of  demand. 

Thus  there  has  been  constant  talk,  for  the  last  thirty  years, 
of  "overproduction"  of  our  American  anthracite  coal,  and  of 
the  need  of  reducing  its  supply  in  order  to  avoiti  loss.  Now 
like  all  mining,  this  involves  a  large  investment  in  shafts, 
levels,  machinery,  transportation.  In  the  ca.se  of  anthracite, 
the  plant  must  be  sufficient  to  supply  the  heavy  needs  of  the 
winter  months;  since  the  fuel  is  used  chiefly  for  domestic  pur- 
poses, the  amount  called  for  is  nnich  greater  in  that  season. 
Coal  used  for  jtower,  as  bituminous  coal  so  largely  is,  suffers 
no  such  nuirked  seasonal  oscillations  of  demand.  The  plant  for 
aiitliracite,  which  must  be  aile(|uate  in  winter,  is  more  than 
adi'i|uate  in  siiiiuner.  There  is  a  tetnptation,  none  the  less,  to 
utilize  it  coMlinuously,  sunmier  and  winter.  .\s  with  all  plant, 
there  is  a  primii  fnn'c  loss  in  leaving  it  idle.  Storage  on  a 
great  scale,  which  would  eciualize  the  irregularities  of  c(m- 
^'unption.  is  extremely  diflicult.  Mence,  we  are  tohl,  there  is 
rrciirrinir  iivcrproductiop..  jind  s(>!ne  !ii!;ref!n!'nt  iisu.-.t  1m'  nvicl'iHl 
among  the  pio'li;  vis  by  wiiich  the  total  amount  put  on  the 
market  nIiuII  Ih>  kept  within  the  lM)unds  of  advantageous  dis- 


OVERPROrUCTION  AND  OVERINVESTMENT 


53 


posal.  Otherwise,  there  is  feverish  activity  at  one  time,  with 
cutthroat  competition,  followed  by  stoppage  and  depression ; 
the  whole  round  means  irregularity  in  employment,  and  evil 
social  conditions. 

It  is  on  such  grounds  as  these  that  combinations  have;  been 
said  to  bring  real  advantage  to  society.'  It  is  not  impossible 
that  they  will  do  so;  but  I  suspect  the  danger  i-  exaggerated, 
while  the  remedy  may  be  worse;  than  the  disea.se.  Business 
men  and  capitalists,  wiien  they  speak  of  overproduction,  com- 
monly mean,  not  that  profits  have  disappeared,  but  that  profits 
are  less  than  they  wish.  They  talk  of  maintaining  a  "fair" 
profit,  when  they  really  wish  to  secure  a  fat  profit.  Over- 
production, that  is,  supply  .so  great  as  to  bring  alxjut  .sales  at 
an  actual  loss,  i.>  prol)ably  much  less  common  than  the  business 
community  would  have  us  sui)pose ;  and  when  it  occurs,  it  is 
d'le  to  oscillations  in  demand  which  would  probably  affect 
a  combination  or  trust  as  much  as  a  Iwdy  of  scattered  pro- 
ducers. The  advocacy  of  combination  as  a  means  of  avoid- 
ing overproihiction  and  industrial  irregularity  is  commonly  but 
an  excuse  for  trying  to  build  up  a  monopoly  which  will  restrict 
production,  and  secure  (or  try  to  .secun>)  regularity  at  the 
expense  of  extra  levies  on  tlie  pultlic. 

§  5.  Some  of  the  phenomena  connected  with  crises,  and 
esi^'cially  the  course  of  events  during  a  ])eriod  of  depre.s.sion, 
have  bern  a.scril)ed  to  overproduction.  Huring  tinjes  of  de- 
pression, it  would  seem,  iiutre  is  i)roduc««d  than  can  be  readily 
sold  or  than  can  Im<  sold  at  a  profit  :  is  then*  not  general  over- 
production ? 

These  phenomena,  however,  result  fioin  the  breakdown  of 
the  machinery  of  exchnn«e.'  They  are  not  due  to  permanent 
or  deep-seated  difficulties  in  finding  an  extensil)|e  or  profital)Ie 
nuirket.  They  are  due  to  tlie  fart  that  confideiic(>  lias  been 
sli;\ken,  credit  disturbed,  the  us\ial  course  of  production  and 
sale  subji  ftc.i  tii  si.iirk.     Tlu  >' ni.iv,  indce  I,  be  nsrrilH'd  in  part 

'  (^lln|'nr(•  whnt  in  oiiiil  Im>Iow.  Hook  VII.  ChMptrr  M,  ^  ^■ 
'Hoc  the  rhaptrr  .11  C'riwn,  ItiHilt  HI,  Chaptor  'il>. 


54 


THE  DISTRIBUTION  OF  WEALTH 


to  some  real  "overproduction,"  —  to  the  fact  that  some  indus- 
tries have  been  puslied  bc\ond  the  needs  of  the  present,  pos- 
sibly beyond  any  needs,  whether  present  or  future.  These 
things  correct  thenisolvcs  in  time.  The  mechanism  of  exchange 
is  restored  to  its  normal  working,  and  the  maladjustment  in 
production  is  set  rijiht.  Unfortunately,  as  we  have  seen,  a 
state  of  completely  normal  adjustment  is  never  reached.  Un- 
due activity  is  likely  to  succeed  undue  dcpr(>ssion.  But  these 
oscillations  are  in  essentials  not  connected  with  any  tendency 
to  general  overproduction.  The  problems  which  they  prest-nt 
relate  largely  to  money,  banking,  credit;  for  a  .solution,  they 
point  to  the  improvement  of  intelligence,  and  the  possibility  of 
conducting  industry  with  progress  and  yet  without  irregularity. 
They  are  little  related  to  those  supjio.sed  limitations  of  demand, 
and  tliose  possibilities  of  permanent  overinvestment,  which 
are  urged  by  the  persons  who  maintain  that  there  is  danger  of 
general  overproduction. 


CHAPTER   42 


Rent,  AGRicrLTiRE,  Land  Tenitie 

§  1.  To  understand  the  roasoninp  of  the  present  chapter, 
the  reader  shoul '  turn  haek  to  B(K)k  I,  Chapter  13.  There 
value  under  tlie  eonditions  of  differinR  east  and  of  diminishing 
returns  was  analyzed.  10<|uilihriuin  of  supply  and  demand  is 
found  under  these  eoudilions  when  marginal  eost  and  marginal 
utility  are  eciual.  Stated  in  simpler  terms,  the  eost  of  the 
mo.st  expensive  portion  of  the  supply  regulates  the  long-run 
value  of  the  whole  supply. 

It  follows  that  those  who  produei*  at  lower  eost  secure  more 
than  ordinary  gains.  Reft-rring  once  more  to  the  diagram 
(vol.  I,  p.  ISO),  it  will  he  seen  that  the  marginal  producer  at  li, 
who  selh  at  the  price  HI'',  secures  the  ordinary  gains  on 
capital  and  the  ordinary  remunerati(m  for  labor, — whether 
his  own  capital  and  lalxtr,  or  lahor  and  capital  which  he  hires 
at  interest  and  for  wages.  If  he  did  not  secure  such  gains, 
he  wtHild  sooner  or  later  withdraw  from  the  industr>'.  The 
producer  at  .1  has  smaller  expenses  of  production,  measured 
by  the  distance  .11',  and  it  would  be  perfectly  i)ossil)ie  for 
him  to  continue  operations  at  the  pric(<  .1.1'.  The  producer  at 
O,  who  has  the  grcitest  advantage  of  all,  ctiuld  continue  opera- 
tions if  the  price  were  as  low  as  .SY)  Roth  sell,  none  the  less, 
at  the  ruling  price  HP'  =  PO.  -the  price  which  must  be  fiaid 
in  order  to  make  it  worth  while  for  the  producer  at  li  to  keep 
on,  and  which  miwt  l>e  piid  in  ordiT  to  bring  about  e(iiiilibrium. 
The  differencr  between  I  he  larger  s)un  HP'  and  the  smaller 
sums.l.t'  and  SO  measures  an  extra  gain  for  tlu>  more  ad- 
V:inl;^<ioUN  in.Ta-iiu;rKiti;i!  produetiv.  Tlic  ti>t:i!  gain  to  all 
these  fortuiuite  fXTsons  is  indicated  by  the  area,  of  approxi- 
mately triangular  shape,  /'/''.'>. 


50 


THE  DISTRIBUTION  OF  WEALTII 


This  additional  amount,  secured  by  those  producers  who 
have  advantagi>s  over  the  marginal  producer,  is  commonly  called 
'  rent"  by  writers  on  economics,  because  it  usually  aiises  in 
connection  with  land.  It  has  been  proj^jsed  to  call  it  "pro- 
ducer's sur])lus."  In  ordinary  parlance,  rent  signifies  a  sum 
paid  by  one  j)erson  to  another  for  the  loan  or  lease  of  any 
durulile  thing,  such  as  a  tract  of  land  a  house,  a  piano.  Its 
use  by  English-speaking  economists,  to  signify  producer's  sur- 
plus, with  special  reference  to  land,  has  gone  on  for  several 
generations,  and  on  the  whole  has  served  to  affix  to  the  word 
"  rent  "  this  technical  sense.  It  is  true  that  "producer's  surplus  " 
is  more  apt,  and  that  the  technical  meaning  of  rent  has  the  dis- 
advantage of  conflicting  with  everyday  usage,  and  so  of  leading 
to  misunderstanding  among  those  not  familiar  with  the  ter- 
minologj-  of  the  writers  on  economics.  But  "  rent  "  has  the 
advantage  of  brevity,  and  the  sanction  of  long-continued  usage 
by  the  best-known  writers.  It  will  lie  u.sed  in  this  book  in  the 
tecliiiical  sense.  Where  there  is  danger  of  misunderstanding, 
it  will  be  spoken  of  as  "economic  rent."  Where  the  word 
"rent  "  is  used  in  its  popular,  and  not  in  its  technical,  sense, 
the  context  or  e.\i)ress  warning  will  guard  against  confusion. 

Rent  forms  no  part  of  the  expenses  of  production;  that  is, 
it  forms  no  j)art  of  those  expenses  of  production  which  affect 
price.  It  is  a  differential  gain,  an  excess  over  and  above  the 
total  expenses  of  the  mori;  fortunate  producers.  Price  is  deter- 
mined by  the  cost  of  the  marginal  increment.  H-Mit  is  not 
one  of  the  factors  bearing  <m  i)rice,  but  is  the  rc-ult  of  price. 
It  is  due  to  the  comparatively  high  price  which  must  be  paid  to 
bring  out  the  total  supply. 

It  is  true  that  there  are  cmiditions  un<ler  which  rent  may 
seem  to  enter  into  the  exfjcnses  of  some  j.roducers.  Supjmso 
thiit  the  producer  at  the  point  O,  possessed  of  a  source  of  en- 
iluring  advantage, —say  a  fertile  or  advantageously  situated 
l)lt)t  ;>f  land,  -  doc;^  not  wish  t..  carry  on  o|HTations  himself, 
but  lets  his  land  to  some  one  els(«.  That  other  person  will  be 
able  to  pay  him  for  the  u.se  of  the  land  an  amount  mt>asurcd 


RENT,  AGRICULTURE,  LAND  TENURE 


o< 


by  SP,  or  tho  total  rent.  Not  only  will  he  be  able  to  do  so, 
but  he  will  be  compelled  to  do  so  by  competition.  The  amount 
SO,  on  that  land,  suffices  to  meet  all  the  expenses  of  produc- 
tion, including  remuneration  to  labor  and  adequate  return  to 
capital.  If  the  owner  offers  it  for  use  by  tenants,  they  will 
bid  against  each  other  for  the  iand  up  to  the  point  where  they 
'vill  retain  for  themselves  the  usual  return  for  labor  and  capital ; 
liiat  is,  they  will  bid  a  rent  up  to  the  amount  SP.  Thereafter 
the  tjnant,  having  contracted  to  pay  SP  as  rent,  will  say  that 
hi',  expenses  of  production  are  no  less  high  than  those  of  the 
marginal  producer  at  li.  Though  he  pays  out  less  for  labor  and 
the  like,  he  pays  rent,  which  the  marginal  producer  has  not 
to  pay.  From  his  point  of  view,  rent  is  as  much  an  expense 
a.s  wages,  and  his  total  expenses  are  no  less  than  those  of  any 
other  producer.  But  all  payments  of  rent,  though  they  are  called 
expenses  by  such  tenants,  clearly  .stand  in  a  different  relation 
to  price  from  the  expenses  at  the  margin  of  production.  They 
are  the  consequence  of  les.sened  expenses  within  the  margin, 
not  the  cause  of  price  at  the  margin.  They  serve  to  equalise 
the  position  of  different  persons  no  one  of  whom  is  so  fortunate 
as  to  own  an  advantageous  source  of  supply.  For  the  person 
who  does  own  such  an  advantageous  source,  they  form  an 
extra  gain,  which  is  secured  equally  wlu«ther  he  exploits  his 
advantage  on  his  own  account  or  receives  a  payment  from 
another  who  bids  for  the  privilege  of  using  it. 

The  typical  case  of  rent,  and  the  one  which  serves  most 
readily  to  illustrate  the  principle,  w  that  of  agricultural  land. 
SupiKMse  that  the  imxlucers  at  O,  .1,  and  B  have  farms  of  dif- 
ferent fertility.  A  jriven  application  of  luiM)r  ami  capital 
yields  at  O  25  bushel.-  of  wheat  to  the  acre,  at  A  20  bushels, 
and  at  li  l."»  bushels  to  the  acn  Tin'  price  must  l)e  such  as 
to  make  wheat-raising  at  H  woitli  wliilt> ;  otherwise  the  total 
supply  will  not  lie  forthcoming.  The  supply  which  can  be 
raised  at  ()  and  .1  is  limited  and  an  addilionu!  •■'tippiy  must 
l>e  got  at  li  iM'fore  an  r<|uilibrium  uf  supply  and  demand  is 
reached.     The  price  is  hitih  enough  to  luing  imrmal  ret\irns  to 


58 


THE  DISTRIBUTION  OF  WEALTH 


'B' 


I'ii 


the  producer  at  B  for  15  bushels  to  the  acre.  The  receipts 
from  these  15  bushels  also  suffice  to  cover  the  expenses  (in- 
cluding usual  return  to  capital)  for  the  producer  at  A.  The 
extra  5  bushels  got  from  liis  land  thus  constitute  an  extra  gain 
for  him.  Similarly  the  extra  ten  bushels  at  0  yield  an  extra 
gain  for  the  producer  at  0.  And  if  the  owners  of  4  or  0  chose 
i  let  their  lands,  instead  of  cultivating  for  themselves,  they 
could  secure  r-uts  of  5  and  10  bushels  to  the  acre  (or  the 
equivalent  in  money  price).  It  is  immaterial  whether  they 
secure  the  advantage  from  the  better  site  iu  the  one  form  or 
the  other. 

Rent  is  sometimes  said  to  be  the  specific  product  of  land. 
Similarly,  interest  is  often  said  to  be  the  product  of  capital, 
and  wages  the  product  of  labor;  and  thus  three  elements  m 
distribution  —  wages,  interest,  rent  —  are  set  against  three 
factors  in  production  —  labor,  capital,  land.  Bui,  this  phrase- 
ology is  to  be  used  with  caution.  T!ie  reasons  for  questioning 
it  with  regard  to  capital  have  been  already  stated.'  Labor 
applied  in  some  ways  (through  the  use  of  too's)  yields  more 
than  labor  applied  in  other  ways;  in  this  sense  only  is  there 
a  productivitv  of  capital.  The  .«ame  language*  should  b(  applied 
to  land.  Laoor  on  .><o!no  land  yields  more  than  labor  applied 
on  other  land  ;  in  this  sense  only  is  there  a  productivity  of  land. 
If  land  were  unlimited  in  supply  and  all  of  uniform  qu-Uity, 
the  natural  forces  inherent  in  it  would  still  be  directed  and 
utilized  by  labor;  and  in  this  sense  there  would  \w  a  produc- 
tivity of  land.  Hut  there  would  be  no  differential  return  on  any 
one  plot  of  land,  no  cinergence  of  rent,  no  notion  of  a  separate 
productivity  of  land  leading  to  rent,  llent  arises  because  of 
the  limitation  of  the  bctlcr  sources  of  si-pply ;  because  of 
dilTerences  in  the  amounts  Iirought  forth  by  equal  quantities 
of  labor. 

§  2.  Such  is  the  fundamental  principle  of  rent.  But  it 
requires  many  qualifnations.  These  corn'orn  thi-  kinds  and 
causes  of  difference  in  productive  efficiency,  and  need  separate 

>  Se«  Chapter  38.  1 3. 


RENT,  .AGRICULTURE,   LAND  TENURE 


59 


consideration.  Tlie  case  of  agricultural  land,  which  has  been 
used  most  often  to  illustrate  the  principle,  may  be  first  taken 
up,  and  will  engage  our  attention  for  tiie  rest  of  the  present 
chapter. 

Unlesr?  there  were  a  tendency  tu  diminishing  returns  frum 
any  one  plot  of  land,  there  would  be  no  such  thing  as  rent. 
If  the  better  sources  of  supply  could  be  pushed  indefinitely 
without  !•■  Vssening  of  yield,  —  if  more  and  more  labor  and 
I'i  !/e  uppliod  to  a  given  plot  of  land,  and  could 
i'l  J'-  '  '  '  of  product  proportionate  to  the 
•at'".>  -  '  ,,  ho.se  i)etter  sources  of  supply  only 
'  ■*<  '.  ".  1  less  good  lands  would  be  left  un- 
d  produce  would  be  got  from  the 
this  is  not  the  case  ;  that  good  lands, 
iKi)r  lauds  are  cultivated  side  by  side,  — 
age  a  tendency  to  diminishing  returns 


capitf' 
alwa 
add;  I    I 

V  t;  M  ii  i  '.■ 

(i  U<  ':      1 
t.     •   l:;t, 


■  'AM'- 
t'K, 


i)      !<■ 


pre  '  >     ! 
appear: 

Wheii  '  /  im!  1 :'  1-  and  capital  are  applied  to  cultivation, 
it  may  bo  a  matter  of  indifference  whether  they  be  applied  to 
poorer  land,  or  to  the  Iwtter  land  under  poorer  conditions.  In 
the  preceding  section,  three  grades  of  land  were  assumed, 
having  yields,  for  the  same  a[)plication  of  lal)or  and  capital, 
of  25,  20,  and  15  bushels  to  the  acre.  But  it  might  also  be 
Buppwsed  that  the  three  applications  of  labor  and  capital  were 
ail  made  Oi  the  saine  laiul,  yielding  successively  diminishing 
returns  in  the  ratio  of  25,  20,  15.  In  either  case,  the  marginal 
product  is  15.  In  either  case,  the  15  bushels  constituting  the 
last  installment  will  not  be  br  igiit  to  market  unless  the  price 
is  such  as  to  make  their  pro  '  ctiou  worth  .vliile ;  hence,  in 
either  case,  the  other  instahi-.v-nts  t)ring  a  surplus  or  rent. 
In  either  ca.^'e,  the  margin  vf  cultii'dtion  is  that  stage  in  pro- 
duction where  only  the  norma!  returns  to  labor  and  capital 
are  secured.  The  margin  is  said  to  be  extensive,  when  poorer 
land  is  rc-sortcd  to ;  it  is  said  to  be  in*.riisive,  whtn  more  capital 
and  labor  are  applied  un''"r  less  fuvo.abie  conditions  to  the 
better   land.     Difference  in  yield    would   appear,  and   hence 


60 


THE  DISTRIBUTION  OF  WEALTH 


;.» 


a  differential  return,  even  though  all  land  were  originally  of  the 
same  quality.  In  fact,  there  is  never  such  a  thing  as  equality 
in  the  natural  endowments  of  Ian*'.  Some  land  is  better  than 
other ;  hence  there  is  both  an  extensive  and  an  intensive  margin 
of  cultivation. 

Differences  in  situation  have  precisely  the  same  effect  aa 
differences  in  fertility.  An  apt  illustration  of  the  effects  of 
situation  (first  elalxjrated  by  the  (Jennan  economist,  Thiinen) 
is  got  by  supp<).Hing  all  land  to  Im'  of  the  same  quality,  and  to 
be  situated  on  all  sides  of  a  central  city  to  which  its  pro<luce  is 
brought  for  sale.  Imagine  concentric  circles  to  Im?  drawn 
about  such  a  central  point.  Evidently  the  land  in  the  luuirer 
rings  has  an  advantage  over  that  in  the  more  distant  rings. 
All  the  i)r(Mluce  is  soltl  in  the  central  market  at  the  same  price; 
but  that  from  the  more  distant  land  hii.s  to  l>ear  <i  higher  cost 
of  trans|>ortation,  and  its  cultivator  nuist  1h'  reimburs«,'d  for 
this.  The  owner  of  the  nearer  land  has  an  advantage  which 
cau.xes  rent  to  arise. 

The  advantage  due  to  situation  obviously  is  less,  the  lower 
the  cost  of  traiis|M>rtation.  The  cheaiMMiitig  of  carriage  in 
motlern  times  has  greatly  diminished  the  im|M)rtan('e  of  situa- 
tion rent.  This  is  strikingly  the  case  for  all  agricultural  prod- 
uce, grain  for  example,  which  is  easily  transi»ortable.  Though 
refrigerating  apparatus  and  fast  fr«>ight  facilities  have  made  it 
|M)ssil>le  (o  bring  meat,  fruit,  vegetables,  and  milk  from  very 
distant  sources  of  supply,  the  nearer  laiuJs  still  have  .some 
advantage  from  situation.  If,  intlecd,  the  ratf-  if  transjMtr- 
tation  should  Im>  the  same  for  all  distances,  the  advantage  wouKl 
ilisappear.  The  railways  which  bring  the  milk  to  some  of  the 
large  eitii-s  of  the  I'nited  States  adopted  at  one  time  the  prac- 
tise of  a  "iMisiiige  -^liinip  nite."  that  is,  an  even  charge  on 
all  shipmchls,  di^<tanc^  being  tlisregarded.  ,So  fur  as  they 
carried  out  lliis  niethiMl,  uilvantages  in  situation,  and  conse- 
({uently  I'conoinic  rent  res.  Iting  from  situation,  were  done 
away  with  for  nnlk  firms  As  it  hupponrd,  public  uuthfirity 
was  ap|M-aled  to  by  the  owmiTs  of  the  nearer  Uuuls  to  prevent 


RENT,  AGRICULTURE,  LAND  TENURE 


61 


this  practise,  it  being  alleged  that  it  was  unreasonable  anil  un- 
just to  fix  rates  of  transportation  without  regard  to  distance. 
The  Interstate  Commerce  Commission  sustained  this  conten- 
tion, and  forbade  the  postage  stump  rate ;  though  prima  facie  it 
would  seem  to  have  been  to  the  advantage  of  milk  consumers, 
and  not  in  violation  of  any  sacred  or  inalienable  rights  of  the 
nearer  producers.' 

§  3.    Wo  proi-eed  now  to  some  (jualifications  and  explana- 
tions of  the  principle  of  diminishing  returns. 

In  some  stages   of  agriculture    it    miiy  not   appear  at  all. 
There  are  circumstances  under  wliich   additional  applications 
of  lalwr  and  cajiital  may  yield  for   a  time   not   less   in   pro- 
portion, but  more.     This  is  most  likely  to  occur  where  a  people 
advanced  in  civilization  suddenly  takes  under  cultivation  virgin 
land,  us  has  Ihh'U  the  case  during  the  last  century  in  the  United 
States  ami  in  other  new  countries.     In  the  first  or  pioneer 
stage,  cultivation  for  such  a  people  often  pnn-eeds  under  diffi- 
culties.    A  second  sta^i    is  reached,  when  nmre  lal)or,  more 
elulHjrate  clearing  and  draiiiing,  more  expensive  agricultural 
implements,  are  put  on  the  land;    and  th»>n  only  is  the  largest 
-eturn  per  unit  of  lalH»r  and  capital  attained.     The  (luestioa 
may  Iw  a.sked,  how  it  hapfM-ns       if  this  be  tiie  case     -that 
additional  lands  are  taken  under  cultivation  at  all  U'fore  the 
stage  of  maximum  productivity  is  reached  on  those  previously 
resorted  to.     The  answer  is  that  the  pioneer  farmer  looks  not 
(miy  to  present  yield,  bul  to  the  coming  years  when,  as  owner 
of  the  soil,  he  will  i»os.sess  much  land  in  good  condition.     It  is 
the  loadstone  of  coniplete  ownership  that  attracts  men  Iti  tlie 
breaking  up  of  the  wilderness.     Hut  the  stage  of  increasing 
returns  which  the  process  of  settlement  thus  involves  is  but  a 
temporary  one,       t(>m|M»rary,  that  is,  in  the  industrial  life  of  a 
community,     Hefore  many  years,  h\  ill  another  stage  is  reached  : 
the  time  c<»n>es  when  the  liind,  tilled  in  the  more  e.are  ul  way 
of  the  |Kist-pioneer  stage,  begins  to  cease  responding  to  inore 

'  (\ini|.iin<  wli.il  in  naiil  l..l..«     !)<>.. I,  \||.  (  liiptir  tht      On  milk  riil.-«,  wp 
IiitvniU(t<  ('iiiiiiiK'rc'i' ( 'DtnmiNMioii  Hi  pi  in.  Vol.  VII.  p.  OJ. 


62 


THE  DISTRIBUTION  OF  WEALTH 


intensive  use.  DiminishinR  roturi)s  show  thcnisclvos,  and  iiRri- 
culture  ronciies  wliat  \vv  may  considtT  its  normal  condition. 
Next,  it  is  to  be  ol)S(>rvi'd  tliat  tlie  tendency  to  diminisliing 
returns  holds  rikkI  only  of  a  specific  plot  or  specific  plots  of 
land.  It  does  not  necessarily  follow  that  agricultural  opera- 
tions in  ijeneral  have  to  face  this  tendency.  There  may  be 
additional  |)lots  of  availabh'  land,  no  less  ^ood  than  those  al- 
f.-ady  used.  The  o|)eninK  up  of  n(>w  regions  has  hail  far- 
reachii\K  effects  of  this  sort.  It  has  greatly  affected  the  older 
countries  of  Europe  as  well  as  the  new  countries  themselves, 
and  has  given  rise  to  the  knotty  problems,  already  considered,' 
H8  to  the  advantanes  of  the  trade  between  them.  In  tlu-  l>road 
sweep  of  history,  these  are  but  temjKjrary  (h'viations  from  the 
IMTtnanent  course  of  things;  but  for  recent  Reneratioiw  they 
have  bei'U  «»f  ureat  cDUsecjuence. 

Finally,  the  tendency  to  diminishiiiK  returns  nmst  be  un<ler- 
stiod  with  reference  to  a  niven  stane  in  the  uKricultiiral  arts. 
New  ami  iM-tter  ways  of  usiiir  the  land  m.-iy  1m-  discovered, 
and  may  make  jtossible  an  increasi-  of  product  ip  pro|H)rtitm 
I    ihe  increase  «»f  lal)or  ajiplied  ;    nay.  may  make  possil)le  a 
gain  m«ire  than  in  pro|)orlion  to  thi'  additional  labor.     Thus, 
during  mai\y   centuries,   from   the  dawn  of  tlie   Middle   Arcs 
until  within  a  humlred  years  (more  or  less),  it  was  customary 
in   i;ur«i|M'an  countries  that   a  part   of  the  land     -  usually  a 
third       should  lie  falU)w  each  ,\<ar,  servin»^  duriuK  that  time 
(inly  a-  a   lean  pasture   for  eoimiiiin   use      The  liiid  actually 
under  lultivatioii  at  any  one  time  was  onlv  twii  thirds  of  the 
total  ;    and   any   particular   pint,   after   iMiim   in   use   for   two 
years,  was  idle  ami  retiiperntiiiK  for  a  third.     AUiut  tin'  middle 
of  the  einiil(<'iilh   icntury   runt   crops,  ispeciallv  clover,   were 
found  to  ulTscI   in  iarn''  pari   the  exhaustion  nf  the  soil  which 
results  friiiii  riiiilliniiiiis  i>raiii  urowiiiu; ;   and  a  systematic  rola- 
liuii  "il  c  rnp'-  viuiM-  into  us<\  which  enabled  all  the  land  to  l»e 
kepi    uiidi  r  eiihivatuin  all   the  liiiie.   ami   vet    (willi  judicious 
U--C  tif  ftrtili/er'^i  to  in:ilii1.ii!i  't-  piMihicliv"'  jMiwi-r      After  this 
I  s,,-  |i.„,k  |\ .  I  Imi  i.t  .\7.  M. 


RENT,   AGRICULTURE,   LAND  TENURE 


63 


great  change,  more  labor  was  apf)lie(l  to  each  plot  of  land, 
than  had  been  applied  before;  yet  was  applied  under  more 
favorable  ronditions.  Again,  during  the  last  half  century,  tlie 
applications  of  ehennstry  to  agriculture  have  shown  the  way 
to  still  better  culture,  more  elaborate  rotation  of  crops,  and 
the  use  of  new  fertilizers.  Th(>  methods  of  plowing,  draining, 
the  selection  of  new  variet cs  of  plants  and  animals,  have  also 
IxM-n  greatly  advanced.  Not  least,  agricultural  macliinery  and 
tottls  have  been  greatly  improved  and  chcapcnccl.  Hence  the 
soil,  when  utilized  in  the  be^^l -known  way,  has  been  pudied 
more  and  more,  with  >ct  up  to  a  certain  point  —  no  diminu- 
tion in  the  marginal  retin-ti. 

It  seems  paradoxical  to  say  that  there  is  a  real  tendency  to 
diminishing  returns,  and  aho  that  m  fact  thcr"  have  been  increas- 
ingreturns.  Vet  both  slat<'meiit>  ;hv  true.  Though  inbackward 
countries,  like  Hriti-h  India  !iiid  China,  and  even  in  some  pjirts 
of  Europe,  the  soil  -till  i-;  u>ed  m  w;i\  th.ii  we  regard  as  primi- 
tive, —  ways  that  prevailed  (i\c  hundred  years  ago.  -agricul- 
tural labor  in  the  United  Si.mIos  and  in  mosi  parts  of  Kurope 
is  fipplied  with  nnich  mi.re  intelliL'.cnee  and  with  lietter  elTect 
th.an  five  hundred  \  ear-.  a:;<),  or  111,1'  liuinlnd  \  cars  agi».  .None 
the  less  there  remains  a  teiideiny  In  dimiiii  liutg  returns,  hn- 
pro\cments  in  tlie  way  of  nit.itii.ii,  fi  rlili/it<,  deeper  plowing, 
systematic  draiuiii":.  >tave  niV  for  ;i  while  the  decline  in 
ii'turn.  .Si  Ion;;  as  the  aiiioant  which  il  i-  ailem|)ted  to  get 
out  of  any  one  plot  remain-  moderate,  the  >t.i'ie  of  pressnre  is 
not  reached.  \\u\  thi-  moderate  limit  pii^sed,  any  attempt  to 
get  an  increa>e  of  product  encounters  s<'rious  and,  before 
long,  imp.iss.alile  ol>»tai!c^. 

.S.  far  .IS  permanent  ditTere!)!!-  m  thi'  yield  from  tin  ,|if- 
ftTCiit  Nites  ate  concerned,  it  n.-iilers  mneli  ulieili.r  mniiil- 
lural  improvemeiiis  are  ec|ii  ilK  !in|)'i  ■  ili|.  tu  all  laiil,  or  are 
«t)|)lii,ili|c   onl\     to    ',.1111     land       II'     i,.r   ex.ample,    tin  \     were 

Hllplicable  ,,id,\     to   the    poor-  r   CI  nlr-   ..I    l.nid    for    thioe   deemed 

IMMin  r    iii    the    eaiiier    -laiic-    i.t    ||ie    ai!ri' ni' iir  il    ar!--):     if    bv 
Pome    pioce'.^es   of   draiiiai!.e,    cjearuif     a:il    l-,eluiif,   a\ailabl»< 


^1 


(i 


^^^^^^^ 


64 


THE  DISTRIBUTION   OF  WEALTH 


i.» 


L 


only  for  some  soils  once  disadvantageous,  these  could  tw  made 
as  fertile  as  those  previously  more  fertile,  —  then  rent,  so  far 
as  due  to  dilTerenees  in  fertility,  would  disai)pear,  and  would 
emerge  only  us  ail  land  eaine  to  he  intensively  used.  But  if 
the  improvements  in  uRriculture  were  e<iually  applicable  to  all 
lands,  tin  differences  between  them  would  remain.  (Jood  lands 
and  had  would  ulike  yiehl  more,  hut  there  would  still  l)c  an 
extra  yield  on  tlie  good  lands;  hence,  so  far  as  Inith  were  cul- 
tivated side  hy  >iile,  tliere  w«iuld  he  inequality  of  return  for 
the  same  luhor,  that  is,  rent.  .\nd  this  in  general  has  l)een 
the  effect  of  agricultural  improvenients.  They  do  not  oblit- 
erate the  iiilK  rent  differences.  Th<<  only  sort  of  improvement 
which  has  markedly  imequal  <ffe<ts  is  the  cheapening  of  trans- 
[Hirtatiou,  which  lirings  the  mor«-  (li>taiit  lands  virtually  nearer 
and  greatly  retluces  advantage  of  situation 

§  4.  With  regard  to  any  given  plol  of  land,  there  is  a  stage, 
at  which  it  may  1m"  said  with  substantial  accuracy  that  the 
land  yields  all  of  which  it  is  caiKil)le.  It  can  then  maintain 
virtually  no  m(»re  persons.  It  is  only  for  the  pur|K)sc  of  illus- 
trating the  general  |)rinciple  of  diminishing  returris  that  we 
suppose  such  an  evenly  ascendin'i  curve  as  that  of  the  figure, 
vol.  I.,  p.  18().  Before  long  the  >tage  is  reached  when  a 
steeply  ascending  curve  would  represi-nt  the  situation.  The 
land  can  indeed  be  made  to  yield  more,  and  the  .ascent  would 
not  l>eroiiie  (juite  vertical.  But  the  increa.se  in  cost  for  a«l- 
ilitioiKil  >  iel<l  is  prohibitory. 

Though  agricultural  improvements  counteract  tliis  tendency, 
and  remove  fuilher  1li<  ^tage  when  tin-  ti-mlency  to  diminish- 
ing relurll^  show-  itMJf  sharply,  lliey  seldom  have  gn-at  and 
r.ipi-i  elTeel-^.  When  once  a  country'^  laiitl  is  all  taken  up, 
aiiil  i>  broiinlit  nndiT  thut  kinti  of  (iiltiv.itinn  whieh  the  exist- 
ing knowiedt"  of  .ig'i.iilture  has  made  familiar  as  the  be-f. 
furth'-r  advance  of  prodmlinn  lakes  place  but  slowly.  Heme 
p,>]iui,,t|on  ean  in«rea-e  but  Inwlv,  ^i  far  a-  if  depends  for 
vii|.|inil  nil  tin  innnlrv-  owii  land.  1'  !■  line  that  some 
(..■.iiui'M-l       in.\        '.Irn^-     li    :ir,'-ii 'lit  lire  beh  V'    I  liui   Wit  h  wi'l"- 


RENT,   ACilllCULTURE,   LAND  TENURE 


Ou 


spread  utilization  of  the  beat  kind-^  of  tillage,  the  yield  of  the 
land  could  be  much  increased  evon  m  thickly  settled  and  highly 
cultivate*!  European  countries.  I  susjM'ct  that  these  {wssi- 
bilities  are  exaggerated.  In  any  t^usc,  rht-  rapiil  adoption  of 
the  best  methods  is  cluckcil.  ♦•sp«'!;iuily  on  the  continent  of 
Europe,  l)y  the  ignorance  and  stolnutv  of  great  sections  of  the 
agricultural  iM)pulation.  IIciicc,  evcii  ttiouiili  there  he  consider- 
able possibilities  of  ini|)roveincnt.  tli  stuffc  where  diminishing 
returns  will  In'gin  to  apptar  sharplx  is  m  fact  not  far  aliead. 
If  a  marked  increase  of  population  iii  luudcrn  times  h.is  not 
caused  a  severe  pressure  to  be  felt,  the  ixplnnatiori  is  found 
in  that  great  change  which  iui-  so  proiouiidly  iniluenced  all 
recent  ecimomic  history,  — the  extraonlm.irv  iinproveinents  in 
transportation  and  the  opening  of  additional  Muirces  of  supply 
in  new  countries. 

§  5.  Ricardo,  with  whose  name  the  theory  of  rent  is  most 
associated,  remarktvl  that  rent  "is  paid  .  .  .  for  the  ii-i  .>\  the 
original  and  indestructible  j>owers  of  the  soil.  "  Ibit  it  i-  ureed 
that  the  soil  has  no  indestructible  powers.  If  continiially 
ero})p(Hl,  it  loses  its  powers.  "Worn-out  land"  is  a  fanmiar 
phenomenon.  The  soil  contains  certain  chetnical  const  it  iietits, 
which  are  taken  from  it  by  growing  plants,  and  who-e  i-im- 
tiniKHJ  loss  means  the  eventual  <le-.tructioii  of  fertility.  The 
chief  of  them  is  nitrogen.  This  is  restored  ithoniih  l>y  uncertain 
and  irregular  .steps)  throuuh  the  spontamvius  aition  of  nature 
if  the  land  be  not  crojjped  ;  hence  the  ancient  practi-e  of  let- 
ting land  lie  fallow,  or  allowing  it  to  "rest  "  Miit  it  is  restored 
more  promptly  and  elTcti  .ly  by  fertilizers  and  by  the  rota- 
tion of  crops,  and  es|M'cially  by  the  root  crojis  On  ail  these 
chemical  proces.ses  the  science  of  miMlern  times  has  throwrj  a 
flood  of  light,  explaining  tin-  practi-es  which  had  been  etn- 
pirically  worked  out  in  former  times  and  pointing  the  way  to 
new  and  better  practi-es,  (Vrtaii\  it  is  that  iniproviilent  cul- 
tivfttiiiu  wasti's  the  powers  of  the  soil,  an<l  that  there  is  need 
of  restoring  to  it  what  contiinious  cropping  remo\es. 

When  new  land  is  (ir»«t  taken  m  cultivation,  the  necessity  of 
vol    II       r 


J 


66 


THE  DISTRIBUTION  OF  WEALTH 


'       I 


restoration  is  not  felt.  The  store  of  elcmonts  of  fertility  is 
then  large,  and  may  maintain  itself,  notwithstanding  con- 
tinuous drain,  for  years  and  even  for  a  generation.  If  there 
be  plenty  of  new  laud,  anotlicr  parcol  can  be  taken  under  cul- 
tivation when  signs  of  exhaustion  ai)pear  on  that  first  used ; 
and  so  on,  as  long  as  new  land  is  available.  This  is  what  the 
Germans  call  "/f(i»6-6(/i/,"  —  predatory  cultivation.  Thus  in 
Cuba,  on  the  sugar  lauds,  the  crop  is  grown  continuously  year 
after  year,  the  juici'  being  extracted  from  the  cane,  and  the 
stalks  and  leaves  burned  as  fuel.  There  is  no  fertilizing,  and 
not  even  those  elements  which  are  contained  in  the  stalks  and 
leaves  are  restored  to  tiie  land.  Hut  after  a  series  of  years, 
even  the  richest  sugar  land  begins  to  show  a  declining  yield. 
Then,  however,  the  planter  turns  to  fresh  i)lots,  and  the  same 
process  begins  over  again.  It  will  continue  until  no  nu)re 
fresh  land  is  available;  for  predatory  cultivation,  so  long  a-< 
the  land  holds  out,  is  the  most  profitable. 

S»ich  has  conunoniy  i)een  the  first  stage  of  agriculture  in  the 
United  States,  esi)ecially  on  the  fertile  lands  of  the  Mississippi 
Valley  and  the  West.  Tiie  <isual  crop  has  lieen  wheat,  becausi; 
of  the  universal  demand  for  that  staple  and  its  easy  transpor- 
tation. In  this  i)ioueer  stage,  wheat  is  grown  year  after  year, 
with  no  niaiiuiing  or  little  of  it,  and  often  with  burning  of  the 
straw.  WIhmc  the  soil  is  rich  in  hunms,  such  use  of  it  can  be 
maintiiined  for  ten  or  fifteen  years,  ami  sometimes  for  an  even 
longer  period,  ^'et  in  lime  the  signs  of  api)roachiiig  exhaustion 
appear.  Tiie  land  no  iomjer  yields  a-;  iM'foie  ;  it  mu^t  have  a 
"re-t"  or  be  "nursed";  and  the  farmer  iiulsl  either  turn  to 
plots  of  \irgiii  soil,  or  ciiltiv.iti'  the  old  with  cuiiscrvation  of  its 
capabilities.  In  the  I'liited  Stales  ihw  transiliun  has  bii'U 
often  accompaniid  witli  a  i  ii;  ii^i'  iii  o\\  ner'^liip  Tlir  i)ioneer 
sells  his  worn-out  land  not  yi-t  in  realit\  imnli  worn  out, 
bu;  simpl\'  in  iummI  of  mine  catiMiil  hn^lian  it\'  in  ;i  m'wci'mer. 
not  iiifre(|tien(  ly  h  ( liiniaii  or  S*  aii(lina\iaii.  wlio  is  lial  ituated 
to  mmi'  rompiev  \va>s  of  i  iilti\  atinn  :  wlulf  tin'  iMonrer  hiiii- 
scli'  moves  farthti  Wr-t,  again  takes  up  virgin  soil,  and  repeats 
the  old  rouudi 


1 

i 


RENT,  AGRICULTURE,  LAND  TENURE 


67 


Predatory  cultivation  is  one  phase  of  extensive  cultivation; 
it  stamls  in  contrast  witli  the  intensive  cultivation  of  England, 
France,  Cerraany,  and  most  parts  of  Europe.  Extensive  cul- 
tivation means  that  labor  and  cai)ital  are  spread  comparatively 
thin.  The  yield  per  acre  is  commonly  small.  Thus  the 
average  yield  of  wheat  per  acre  in  the  I'uited  States  is  between 
12  and  15  bushels.  In  England,  the  average  is  25  bushels  and 
more.  But  the  yield  i)er  unit  of  lulior  and  capital  is  smaller 
in  England;  for  nmch  more  laltur  is  api)lied  to  each  acre.  A 
farm  of  one  huMdre<l  and  sixty  iinv<  in  the  typical  agricul- 
tural regions  of  the  I'nited  Stat«'s  -  <ay  in  tlic  North  Central 
states  —  is  tilknl  by  the  dwutr  and  his  family,  with  possibly 
one  hired  lalMUer.  .\  farm  of  the  -ume  size  in  (Jieat  Britain 
is  tilled  by  a  capitalist  farmer  employing  a  whole  staff  of 
farm  lalxtrers. 

Extensive  cultivation,  however,  is  not  necessarily  i)redatory 
cultivation.  Lalior  an<!  capital  may  Ik'  spread  thin  on  the 
tK)il,  yet  nevertheless  may  be  ai)i)lii'd  with  care,  and  with  due 
conservatit)n  of  the  elements  of  fertility.  In  the  I'liited  States, 
the  first  stage  of  pioneer  or  |>re<latory  cultivation  -lasting 
perhaj)s  for  ten  or  even  twenty  years  is  u-ually  ■succeeded 
by  more  careful,  but  still  e.\ten-ive,  tillage,  Mo>t  of  the  land 
in  the  upper  .Mississip])i  X'alley  i>  now  in  this  second  ^-lage. 
It  may  be  expected  that,  as  population  thickens  ami  the  resort 
to  new  land  becomes  more  and  more  ilidiciilt.  a  gradual  tran- 
sition will  take  place  t<»ward  the  stjiMi-  ol  high  farming  or  m- 
tensive  cultivation.  More  elaliomle  rotation  if  cro|is,  more 
continuous  use  of  e;ich  tr.ict,  dei-per  plowing,  more  fre(|uent 
harrowing,  systematic  drainage,  more  almiiilant  and  mttre 
carefully  selecttnl  Icrtili/ers,  will  I.e  used,  as  tliev  now  are  in 
the  aiivanced  countries  of  Europe.  This  cluiiijiv  is  ihie  to  the 
t«'ndency  to  diminishing  relnriis,  and  is  a  sign  that  the 
itMiditions  ol  pressure  on  the  IjukI  h.ive  been  reacheil. 
High  farnung  is  essential  to  maintain  the  prtHJuctivity  of 
the  land  if  la'ge  returns  are  >ought  finm  it  ;  but  it  means 
tiiMt  thone  large  returns    are    got    with    some    dillicultv,    and 


a. 


68 


THE  DISTRIBUTION  OF  WEALTH 


r 


I 


that  the  Hinit  to  the  possibilities  of  increase  is  beginning  to  be 
approacheti. 

In  any  case,  as  tiie  land  of  a  country  is  used  more  and  more, 
its  efficacy  as  an  agent  for  pro<luction  depends  in  greater  and 
greater  degree  on  what  man  has  done  for  it.  Those  lands 
which  were  originally  best  iiave  l)een  denuded  somewhat  of 
their  natural  stores.  Those  which  were  originally  less  good 
have  been  brought  nearer  the  average  by  continued  careful 
cultivation.  All  have  been  leveled,  drained,  fenced,  freed 
from  large  stones,  and  provided  with  roads.  The  differences 
between  plots  are  thus  less  great,  the  longer  they  have  been 
in  use ;  and  in  old  countries  tlier(>  is  a  tendency  to  bring  all 
land  to  something  like  the  same  state. 

From  this  it  might  be  inferred  that  inherent  differences  in 
land  cea.se  to  !)e  of  importaut'c.  Hut  the  conclusion  by  no  means 
follows.  It  is  true  that  all  !  -nd  needs  careful  use,  and  depends 
on  man's  action  for  the  maintenance  of  its  fertility;  but  all 
does  not  respond  to  man's  action  with  the  same  ease  or  to  the 
same  degne.  Land  with  a  deep  layer  of  hutims  contains  very 
rid)  sttires  of  latent  plant  f(»()d,  not  easily  transferred  to  the 
plant,  yet  capalije  of  lieing  utilized  almost  indefinitely  if  only 
there  be  restorative  cultivation.  The  physical  constitiitiim  of 
land  in  what  )»ro|)ortions  it  contains  .sand,  clay,  humus -- 
has  an  imixii iant  inlluenrc  on  its  possibilities  for  tillage.  Though 
a  sandy  \v;i-le  or  barren  hillside  may  be  brought  to  a  state  of 
high  yield  by  continued  care  and  remaking,  it  cannot  be  iirought 
t(»  that  >\a\i-  or  maintained  then'  witli  as  little  labor  as  land 
lia\ing  lii'tter  natural  endowment.  \cu  iJmlaiid  can  never 
be  made  as  fertile  .'is  IlliMois  aiid   Kentnely      <  jitnate.  again, 

sunshine,  teinperatine,  and  precipitation,  i-,  an  important 
ciu^e  of  eiidurinu;  dilTereiices,  '!'lie  newly  <ipeiie,|  land  in  the 
(  imadian  Northwest,  for  example,  of  which  m.  much  has  I.erMi 
said  in  rereiit  yeiirs,  >eems  to  be  well  adapted  for  wheat  lirow- 
ing,  and  piomise,  for  a  lon»j  series  of  years  to  giv«'  profital>le 
o-ip,,itiiiiiii(.s  for  pioiH'er  cnlliatioii.  Hut  when  after  perhaps 
a     cneralioii,  the  inevilai>le  stage  of  restorative     ;ilti\ation  is 


RENT,  AGRICULTURE,  LAND  TENURE 


69 


reached,  its  possibilities  will  be  found  less  than  that  of  land 
in  milder  regionsr.  Land  that  is  frost  Ijound  througli  tlio  larger 
part  of  the  year  is  not  a  llexible  instrument,  anil  will  not  read- 
ily respond  to  more  in(;Misive  cultivation.  In  the  semi-arid 
regions  of  the  Western  states,  —  those  stretches  in  Nebraska, 
Kansas,  Texas,  which  lie  internuHliate  l)etween  the  well-watere<l 
Mississippi  v  alley  and  the  arid  plains  of  Wyoming,  Colorado, 
and  New  Mexico,  —  "t  is  said  that  "dry  farming,"  in  the  way 
of  deeper  plowing,  careful  harrowing  and  roiling,  specially  se- 
lected seeds,  will  remove  climatic  obstacles  long  thought  in- 
superable. Whether  or  no  these  expectations  are  fulfilled,  it  is 
certain  '.\u\t  more  labor  will  need  to  be  a|)plied  in  those  regions 
than  in  the  Mississippi  Valley,  where  nature  provide  •.  ample 
moisture. 

Though  inherent  dilTerences  in  fertility  thus  persist,  it  is  true 
tliat  on  all  land  which  has  long  been  in  use  there  is  difficulty 
in  determining  how  much  the  yield  is  alTected  by  its  " original 
and  indestructible  |)owers,"  how  much  by  ijualities  supplied 
through  man's  action.  Economic  rent  is  extremely  diflicult 
to  mark  olT.  Heyond  (juchtion  it  is  present  on  some  sites: 
thus  on  bottom  lands  in  our  Western  valleys,  where  the  layer 
of  humus  is  extraordinarily  deep;  or  (by  virtue  of  situation) 
on  convenieni  sites  for  market  ganh'us  close  to  gri'at  cities. 
We  may  be  certain  that  on  other  lands  there  is  little  or  iion«' 
of  it,  -orj  the  nu'ky  pastures  (if  New  Knglauil  or  on  the  High- 
lands of  Scotland.  But  on  any  parti<'ular  plot  which  has  been 
long  imder  cnltivatiun  it  is  almost  impossible  to  say  how  much 
lal)or  is  aided  by  the  improvements  made  by  man,  how  much 
by  inherent  properties. 

When  oficf  permanent  improvements  have  been  eml)odied 
in  the  land,  thi'ir  elTecl  is  precisely  liw  s.itui'  as  if  nature  had 
made  the  land  ijood.  ."^nbsuil  dr.'iniiiu;,  tor  evmnple,  which  has 
been  !ippiii'(l  duriim;  tiie  List  twenty  \ear->  on  a  great  scale  in 
Ohio,  Iniliana,  Illinois,  .-iini  oilier  sta'es  wImi.  the  pioneer  -tage 
ha.s  been  passed.  ni"aiis  an  irn  vocable  ii!\  esiinent.  When  the 
drains  are  in,  it  is  as  if  nature,  not  man,  had  providi-d  the  liest 


d^ 


70 


THE  DISTRIBUTION  OF  WEALTH 


f 


means  of  admitting  nioisturo  and  of  iliseharging  the  harmful 
excess.  So  it  is  when  great  operations  for  drainage  are  under- 
taiien,  —  as  on  the  Bedfoni  Level  in  England,  or  the  tracts  on 
the  Mississippi  River  along  the  boundary  between  Missouri 
and  Arkansas.  E.\ten.-ivc  areas,  high  in  the  elements  of  fer- 
tility, have  thus  l)een  freed  from  e.xcessive  moisture.  Once 
these  improvements  are  made,  the  return  on  the  land  depends 
on  the  principles  of  rent  rather  than  on  those  of  interest.  It 
depends  once  for  all  on  the  i)r*Mluctive  (juaiity  of  the  land  as 
it  stands  after  the  improveniciit.' 

§  6.  The  leasing  of  land  and  the  payment  of  "rent"  in  the 
usual  sense  does  not  n»'('(>ssarily  imply  the  existence  of  eco- 
nomic rent.  What  the  ti-iuint  pays  may  be  no  more  than  tho 
ordinary  return,  in  tlie  way  of  interest,  on  imjjrovements  made 
by  the  owner.  But  commonly  the  actual  payment  contains 
something  of  economic  rent  as  well  as  of  return  ou  capital. 
Tenant  >  raises  some  imlependent  (lucstions. 

Almost  always  tenancy  is  an  obstacU'  to  tlie  best  u.se  of  tho 
land ;  for  the  tenant  is  concerneil  onl\  with  getting  out  of  it 
what  he  can  during  his  term,  and  is  tempted  to  emjiloy  preda- 
tory methods.  In  its  barest  form,  where  the  laixUonl  does 
nothing,  and  the  land  is  sim|)ly  let  to  the  tenant  from  year  to 
year,  it  results  not  only  in  bad  tillage, but  in  dt moralized  tillers. 
Such  was  the  outcome  of  cottier  holdings  in  Ireland,  maintained 
there  for  centuries  in  the  dealings  between  alien  landlords  and 
an  oppressed  and  ignorant  tenantry.  The  situation  is  better 
where  there  is  fixed  tenure  in  the  form  of  hmg  leases,  with 
provisit)n  for  compensation  to  tmants  for  imiirovcmcnts  made 
by  them  and  not  exhausted  on  tin-  expiration  of  the  lease. 
Yet  even  under  this  arrangement  the  landlord  nmst  have  a 
care  for  the  way  in  which  the  soil  is  used,  ami  he  usually  makes 
stipulation^  regarding  the  rot.ilion  of  en)|)s  and  the  inain- 
temun-e  of  improv- inenl~.  Vet  these  very  stipulations,  if 
detaile<|,  haiiifx'r  the  tenant  unduly.  In  Engl.uid,  a  practise 
of  short  leases  i Usually  from  year  to  year)  li;i>  been  carrieti  on 

'  ('i)nipurr  ulmt  in  iiui<l  hclow.  Cliaptcr  i'.i,  i  i. 


RENT,  AGRICULTURE,  LAND  TENURE 


71 


without  much  ill  effect,  because  landlord  and  tenant  have  been 
virtually  partners.  The  English  farmer  is  a  person  of  some 
means,  who  leases  a  considerable  tract  of  land,  and  is  prepared 
to  cultivate  it  systematically  for  an  extended  period,  relying  on 
renewal  of  his  lease  at  equitable  terms  so  long  as  his  husbandry 
is  good.  The  landlord  himself  makes  permanent  improvements, 
and  is  thus  an  investor  in  the  land.  The  actual  payment  made 
to  the  landlord  rcijrescnts  economic  rent  only  in  part.  Tra- 
ditions of  fritMidlincss  and  fair-niindt'd  dealing  between  the  two 
have  made  this  arrangement  a  workaliif  (me;  and  indeed  the 
agricultural  arts  in  England  have  reached  a  high  degree  of 
advancement  under  them.  In  Seotland  long  leases,  sometimes 
for  twentj'-one  years,  are  conunon,  and  under  them  perhaps 
the  most  r(>line<l  forms  of  inten.-iive  cultivation  have  been 
developed. 

None  the  less,  the  most  effective  use  of  the  land  is  likely  to 
be  made  by  the  owner.  Such,  at  all  events,  is  the  case  '"here 
land  is  retidily  transferable,  and  so  can  Ix-  bid  for  and  secured 
by  (hose  who  know  how  best  t(»  make  use  of  it.  This  facility 
is  lacking  in  many  luiropcan  countries,  especially  in  England 
and  France;  where,  moreover,  the  oltstacles  which  the  state 
of  the  law  pn^sents  are  increased  by  the  social  prestige  which 
often  attai'hes  to  large  landed  estates  and  makes  the  owners 
reluctant  to  sell.  In  t'  c  United  States,  none  of  these  obstacles 
exist.  Here,  at  least  in  the  northern  part  of  the  country,  most 
land  is  tilleil  i)y  the  owners.  Earnis  are  constantly  passing 
from  one  hiuid  to  aiiolher,  acconling  as  varying  possil>ilities  of 
cultivation  ar(>  ivrceived  l)y  dilTerent  persons,  —  a  condition 
which  promotes  the  most  productive  utilization  of  the  soil. 
In  the  Noitli  ('eiitral  states,  the  great  agricultural  region  of 
the  country,  alioui  sixty  per  cent  of  the  farms  are  tilled  by 
their  owners.  During  the  last  two  dec.-ides,  there  has  been 
some  increase  of  tenancy  in  this  region,  and  in  the  North 
generally.  Mut  the  increase  is  largely  due  to  the  efforts  of 
younger  men  to  *\ving  themselves  inlo  the  |)osition  of  owners,— 
a  process  which  takes  time  in  those  sections  where  land  com- 


MlOtOCOfV   RiSdUTION    TIST   CHART 

(ANSI  ond  ISO  TEST  CHART  No   2) 


lb 

tit, 
u 


1^      1^ 

m    12.2 

11.8 


1.25  yyiu 


1.6 


ji 


/APPLIED  IIVHGE     Inc 

(7 1ft)    ,"««       S«Ry       [.,, 


72 


THE   DISTRIBUTION   OF  WEALTH 


mands  a  high  price,  and  where  a  eonsiderahle  sum  in  hand  is 
required  to  buy  it  outright.  Notwithstanding  the  increase  in 
tenancy,  the  conditions  of  land  holding  in  the  northern  parts 
of  the  United  states  an-  satisfa''tory.  The  same  is  true  of 
many  parts  of  (ierinany,  and  especially  of  Prussia,  where  the 
percentage  of  land  ownership  is  also  high. 

A  not  uncommon  form  of  tenure  in  the  southern  part  of 
Europe  —  in  France  and  still  more  in  Italy  —  is  metayer 
tenure.  The  land  is  let  for  a  share  of  the  crop;  often  one  half 
of  the  crop,  but  more  or  less  according  to  the  fertility  of  the 
soil  and  the  extent  of  the  landlord's  other  contribution.  The 
landlord  himself  provides  part  of  the  capital  used.  Metayer 
tenure  has  the  advantage  of  stimulating  the  cultivator  to  get 
from  the  land  as  much  as  possible;  but  evidently  with  the 
drawback  which  comes  from  the  act  that  the  landlord  also 
shares  in  the  output.  In  the  southern  part  of  the  United 
States  there  is  a  widespread  practise  of  share  tciumcy  among 
the  negroes.  The  owners  of  the  land  here  contribute  a  very 
large  part  (.sometimes  all)  of  the  advances  need(>d  by  the 
tenants :  not  only  seed,  im|)lements,  anima's,  but  even  the  food 
of  the  negroes.  This  arrangement  was  doubtless  inevitable 
under  the  conditions  in  which  the  Southern  states  found 
th«'mselves  at  the  close  of  the  Civil  War,  the  freeihnen  being 
destitute  alike  of  means  and  of  any  exiM-rience  in  agricultural 
numagement.  Yet  it  is  not  comparable  in  social  advantage 
with  complete  (twnership  by  those  who  work  on  the  soil.  It 
is  inferior  also  to  leases  at  a  fixed  nioney  rent,  where  the  leasen 
are  so  adjusted  as  to  bring  .security  of  tenure  and  encourage- 
ment to  improvement.  \  wi  dilTusirtn  of  the  ownership  of 
lanil,  and  a  predominance  of  cultivation  by  the  owni-rs,  are  the 
most  wholesome  agricultural  conditions;  ami  it  is  much  to  be 
wished  that  these  conditions,  which  I'orliniiilely  prevail  ,ver 
the  gr«>ater  part  of  the  United  States,  should  (h-velop  in  the 
Southern  states  iilso. 

§  7.  The  considrrnlions  which  have  been  adduced  in  the 
preceding  sections-    the  netd  of  con,s(iving  the  fertility  of 


■I 

3 


RENT,  AGRICULTURE,  LAND  TENURE 


73 


i 


i 


the  land,  the  growing  importance  of  man's  action  as  cultiva- 
tion becomes  more  intensive,  the  difficulty  of  distinguishing 
between  nature's  endowment  and  artificial  improvements  — 
have  an  important  bearing  on  some  social  problems. 

It  has  been  proposed  to  confiscate  economic  rent  for  the 
benefit  of  the  conmiunity.  Rent  is  a  surplus  over  and  above 
what  is  necessary  to  induce  investment ;  an  unearned  incre- 
ment, tending  to  rise  as  growing  population  leads  to  greater 
demands  on  the  soil.  Why  should  the  individual  Ituidowiier 
keep  it?  Under  the  so-called  "single  tax,"  it  is  proposed  that 
ail  land  be  taxed  to  the  full  amount  of  its  economic  rent;  the 
tax  Ijeing  called  single,  because  it  is  expected  that  so  much 
revenue  would  be  secured  for  tlu^  public  as  to  enable  all  other 
levies  to  be  dispensed  with.  Sul)stantially  the  same  result 
would  be  attained  if  the  community  were  to  take  possession 
ol'  the  land  once  for  all,  never  part  with  the  title,  and  let  the 
land  to  tenants  for  the  amount  of  its  rent,  —  allowing  the 
tenant  to  ke(>p  for  himself  enough  to  pay  for  all  his  im|)rove- 
ments  and  for  interest  on  then),  but  rtniuiring  payment  of  the 
excess. 

One  fundamental  obstacle  in  the  way  of  this  program  of  action 
is,  as  regards  agricultural  land,  the  dilHculty  of  measuring  the 
investment  made  in  the  soil  an<l  the  normal  return  on  it.  Rent, 
as  has  been  remarke<l,  does  not  arise  spontaneously.  It  is  not 
eartnarked  as  a  separatf  return.  Its  emergence  is  inextricably 
intermixed  with  the  complex  processes  of  tilling  the  soil  and 
of  nmintaining  its  fertility.  For  the  elTective  use  of  the  laml. 
there  must  be  elaborate  application  of  labor,  much  experiment- 
ing, plans  of  cullivalion  that  nm  over  a  long  i)eriod  ;  not 
least,  constant  individual  watc'ifulness  and  care.  No  siiuiulus 
to  the  best  use  of  land  is  eoniparable  to  tluit  wliieli  comes 
from  secure  possession,  from  the  certainty  that  he  who  makes 
it  yield  altimdantly  will  reap  the  results  of  his  in<liistry.  And 
no  kind  of  sei'ure  possession  is  so  elTective  to  this  end  as  un- 
trannnele<l  owi'ership.  It  is  tru«'  that  by  private  ownership 
the   conununitv    loses   something   whieti,    if   tli-ereetly   carved 


74 


THE  DISTRIBUTION  OF  WEALTH 


out,  might  be  appropriated  without  discouraging  good  manage- 
ment ;  but  the  difficulties  of  discreet  carving  are  so  serious, 
and  the  need  of  good  management  so  great,  that  the  balance 
of  social  gain  is  against  any  scheme  of  taxation  or  periodic 
appropriation. 

There  is  something  attractive  in  the  proposal  that  the  com- 
munity should  never  part  with  its  title  to  tiie  land,  but  should 
lease  it  only,  —  lease  it,  doubtless,  for  long  terms,  in  such 
manner  as  to  give  tenants  free  scope  for  improvements  and  no 
inducement  to  impoverish  the  soil,  and  yet  to  bring  back  to 
the  conununity  in  the  end  the  gradually  increasing  increment 
of  economic  rent.  If  a  country  had  started  from  the  outset 
on  this  plan,  and  'f  its  govermnent  wen^  rigidly  honest,  highly 
intelligent,  and  excellently  administered,  this  mode  of  manag- 
ing its  patrimony  would  be  preferable  to  private  ownership. 
But  no  country  has  started  on  this  plan ;  or  if  it  has  done  so 
(the  historians  are  uncertain  as  to  the  extent  to  which  the 
Germanic  races  began  with  a  system  of  tru<'  comnumal  owner- 
ship), long  centuries  of  private  ownership  have  followed.  The 
spur  of  ownership  was  historically  iiulispensal)le  for  the  ad- 
vance of  the  agricultural  arts.  It  is  conceival)le  that  where  a 
civilized  comnmnity,  equipped  with  the  accumulated  experi- 
ence of  centuries,  takes  possession  of  new  lau<l  —  as  in  the 
United  States,  ("unada,  Australia  —  it  might  retain  in  public 
ownership  the  fee  of  the  land,  parting  oidy  with  long  lease- 
holds. Hut  it  is  precisely  the  fee  which  the  ])ioneer  genera- 
tions covet.  The  thought  of  the  (onservation  of  the  interests 
of  coming  generations  rarely  presents  itself  to  them;  or,  if  it 
does,  they  think  of  th<Mr  own  direct  <leseendants  only,  not  of 
tlie  indiscriminate  mass  of  tlie  later  population.  Hence  all 
conuminities,  \<lietlier  they  have  moved  slowly  thntugh  a 
long  historical  dt  velopmeni  or  have  b.  vjun  at  once  on  the  plane 
of  advanced  civilization,  have  rested  their  industrial  organi- 
zation on  piivnti-  ownership  of  land.  Land  then  has  i)een 
bought  and  sold  for  centiuies  on  the  supptisitiou  that  the 
property  rights  which  have  existed  fruju  time  imuuuuoriul  will 


RENT,  AGRICULTURE,  LAND  TENURE 


to 


be  maintained  indefinitely  into  the  future.  To  destroy  all 
these  acquired  rights  is  not  indeed  unthinkable ;  hut  it  would 
involve  a  reconstruction  of  the  whole  fnuncwork  of  society. 
It  presents  the  problem  of  socialism,  not  that  of  the  appropria- 
tion of  the  unearned  increment. 

A  different  proposal  is  that  to  appropriate,  not  the  whole 
of  the  unearned  increment,  but  the  future  accretions.  Let 
vested  rights  —  the  private  ownership  of  land  and  the  enjoy- 
ment of  existing  rents  —  n>main  undisturbed.  But  take  for 
society  at  large  the  increase  of  rents  that  will  arise  hereafter. 
There  can  be  no  obj(>ctions  in  principle  to  this  proposal.  The 
sole  question  is  whether  it  will  on  the  whole  bring  gain  to  the 
community.  To  carv(>  out  economic  rent  proper,  and  to  leave 
undisturbed  those  gains  which  are  necessary  f">  secure  the 
effective  use  of  the  lanrl,  calls  for  high  intelligence  as  well  as 
scrupulous  honesty  among  the  public  officials.  A  dull  or 
corrupt  administration  of  so  delicate  a  function  would  work 
great  harm  and  indeed  would  probably  lead  before  lon^,  to  the 
summary  abamlomiient  of  the-  whole  scheme.  It  is  to  be 
borne  in  mind,  moret-vtr,  th.it  where  the  ownership  of  land  is 
much  .liffused,  a  wide  dispersion  of  economic  rent  takes 
place,  and  those  extreme  ine(|U!ilitics  are  avoided  which  are 
the  most  objectional)le  results  of  the  r<''giine  of  private  property. 
All  things  considered,  —  administrative  difficulties  and  the  im- 
perfections of  government,  as  well  as  strictly  economic  factors, 
—  the  balance  of  gain  is  probnl)ly  in  favor  of  the  untrammeled 
right  of  private  ownership  in  agricultural  land,  and  of  such 
legislative'  changes  only  as  facilitate  its  free  tran^flT  and  its 
ea«y  acquisition  by  those  who  will  use  it  best. 


I 


CHAPTER  43 
Urban  Site  Rent 


I     i 


§  1.  Urban  rent  resemhlos  in  essentials  the  rent  of  agricul- 
ti,ral  land.  Like  that,  it  results  from  the  difierential  ad- 
v&ntaRes  of  eertain  plots.  The  application  of  capital  and 
labor  on  some  sites  yields  greater  returns  than  on  others.  So 
long  as  the  possibilities  of  production  on  the  better  sites  are 
limited,  the  owners  are  subject  only  to  a  restricted  com- 
petition, and  can  retain  the  extra  return  for  themselves;  and 
this,  irrespective  of  whether  they  utilize  the  sites  themselves, 
or  let  them  to  others. 

What  is  the  cause  and  the  extent  of  the  ditTerential  advan- 
taRe  of  urban  land,  can  best  l)e  elucidated  by  a  consideration 
of  the  various  ways  in  which  the  laud  is  used.  Most  charac- 
teristic, and  simplest  in  its  manifestations,  is  the  case  of  sites 
used  for  retail  trading.  Wherever  throngs  of  people  habitually 
pass,  retail  operations  can  be  conducted  with  most  advantage. 
Enter  a  great  shop  in  the  heart  of  a  city,  and  observe  what 
goes  on.  The  selling  clerks  are  continuously  busy;  the  turn- 
over of  capital  is  large  and  ((uick ;  the  building  and  all  its 
appliances  are  in  constant  effective*  use.  Contrast  the  scene 
with  the  village  shop,  where  the  shopkeeper  lolls  al)0ut  during 
the  greater  part  of  the  day.  waiting  for  a  customer;  or  (if 
he  be  energetic)  has  ample  tini<'  for  attending  to  other 
things  also.  For  each  iniit  of  lalior  and  ca]>ital  applie<l,  the 
|)roduct  is  vastly  greater  on  thi'  city  site.  Hy  "i)r()duct,"  in 
the  case  of  the  shop,  we  mean  llie  contribution  to  the  com- 
munity's iticome  of  utilities  or  satisfacti<ms,  —  the  coin- 
pl(>tioi\  of  what  is  usually  the  last  stage  in  the  process  of  get- 
ting commodities  into  eonsnmers'  liaiuls.     In  everytlay  speech, 

70 


M 


URBAN  yiTE  RENT 


77 


tho  same  thing  is  expressed  by  saying  that  in  the  one  place 
much  business  can  be  done,  and  very  Uttle  in  the  other. 

The  precise  reasons  why  some  sites  are  1  Hotter  tluin  others 
for  retail  trading  are  sonietinios  simple,  sometiines  obscure. 
Most   simple    are    accessibility    and    familiarity.     Tlio   places 
where  urban  transportation  lines  converge  are  the  most  valuable 
for  retail  trade.     From  such  centers  the  retail  streets  com- 
monly radiate,   those  being  most  advantageous  along  wlii<'h 
the  largest  number  of  persons  move  to  and  fro  in  their  daily 
.asks.     Anything  which  causes  many  persons  to  lictake  them- 
selves to  a  given  point  —  a  railway  station,  a  post  office,  a 
theater  —  gives  the  neighboring  sites  an  advantage  for  retail 
trading.     Less  simple  are  the  effects  of  tradition,  or  of  proximity 
to  the  dwellings  of  the  well-to-do,  or  of  the  initiative  of  a  few 
skillful  dealers,  by  which  one  street  or  re,u;ion  rather    than 
another  may  come  into  vogue  for  shops  of  the  more  expensive 
kind,  and  its  profitableness  may  for  that  reason  ix'come  greater. 
Display  has  a  great  part  in  attracting  customers  (it  is  a  cardinal 
maxim  of  the  retailer  that  his  windows  must  show  his  goods) ; 
hence  the  southern  siile  of  tlu>  street,  where  goods  can  be  put 
into  show  windows  with  most  effect  and  with  least  danger  of 
spoiling,  often  has  an  advantage  over  the  northern,  and  com- 
mands a  higher  rent. 

The  prices  of  the  commodities  sold  on  the  more  (>xpensive 
Bites  are  not  higher.  Here,  as  in  the  case  of  agricultural  land, 
rent  is  not  a  cause  of  high  price.  It  is  the  result  of  the  facilities 
for  selling  many  things  at  the  usual  prices.  The  so-called  de- 
partment store  sells  its  wares  at  prices  at  least  as  low  as  those  of 
the  suburban  or  village  shop.  To  this  statement  there  seems, 
indeed,  to  be  an  exception  in  the  case  of  thucc  shops  which 
make  their  appeal  to  the  rirh,  and  to  persons  who  ape  tho 
ways  of  the  rich.  Here  a  giv(>n  article  is  not  infrequently  sold 
at  a  price  higher  than  that  diargeit  on  less  jiretentious  prcinisrs 
v,'\iKm  a  atonc's  thmw.  Here  hisrh.  prii-cs  mid  high  rents  go 
together;  and  the  <lealers,  if  asked,  would  eertiiinly  explain 
the  connection  betwi'en  the  two  by  saying  liiat,  having  to  pay 


i 


78 


THE  DISTRIBUTION   OF  WEALTH 


high  rents,  they  must  charge  higher  prices.  But  in  reahty  the 
causal  connection  runs  just  the  other  way ;  it  is  because  they 
can  get  high  [)rices  that  they  bid  high  for  tlie  premises  and 
pay  the  high  rents.  In  shops  of  this  character  there  is  usually 
a  stock  of  well-selected  and  attractively  arranged  articles  of 
good  quality;  there  is  quiet,  and,  not  least,  there  is  a  Nattering 
of  the  purchaser's  vanity  by  obsequious  demeanor  and  by  a  sug- 
gestion of  superior  company.  The  satisfaction  of  the  snob- 
bish love  of  distinction  is  one  of  the  utilities  here  purveyed,  and 
is  one  for  which  nx     people  are  willing  to  pay  handsomely. 

Sites  for  wholesale  trading  connnand  their  rentals  largely  be- 
cause of  their  proximity  to  other  sites  where  the  same  or  similar 
businesses  are  carried  on.  This  advantage  may  seem  a  trifling 
one,  especially  in  these  days  :;f  the  telephone.  Yet  where 
trading  is  done  on  a  great  scale,  a  few  hundred  dollars  more 
or  less,  or  even  a  few  thousand,  paid  for  rent  do  not  signify 
much  in  the  general  account,  and  the  facilitation  of  larger 
dealings  leads  to  the  ready  payment  of  a  high  premium  for 
the  convenient  sites.  Here  every  sort  of  negotiator  can  run 
in  promptly ;  banks,  brokers,  shipping  agents,  insurance  com- 
panies, are  close  by.  Wholesale  dealers  in  the  same  tratle 
commonly  are  near  each  other  ;  in  a  great  city  there  is  the  metal 
district,  the  dry  goods  district,  the  l)oot  and  shoe  district,  the 
shipping  district,  and  so  on.  All  together  cluster  about  the 
financial  center,  which  in  turn  gets  its  advantage  from  being 
in  clos(>  touch  with  any  and  every  kind  of  business.  Tho 
most  various  .»iorts  of  persons,  who  need  to  be  where  they  can 
easily  get  at  their  customers  and  where  their  customers  ca.i 
easily  get  at  them,  bid  for  premises  near  the  heart  of  things; 
such  as  lawyers,  brokers,  schemers,  and  middlemen  of  all  kinds, 
tl>e  nianagers  and  representatives  of  manufacturing  establish- 
ments. Hence  the  nllice  building,  developed  to  perfection  in 
American  cities.  The  largest  urban  rents  seem  to  be  secured, 
at  least  in  American  cities,  on  sites  used  for  ofTices,  for  financial 
enterprises,  and  for  the  great  retail  shops.  They  sometimes  reach 
an  extraordinary  range.     An  aatv  of  land  in  the  tinancial  center 


^^erww-r'T'/mf^mi^ 


URBAX  SITE  RENT 


79 


of  Now  York  City  has  a  capital  value  of  roughly  .?20,000,000, 
repri'sontinp;  a  rontal  of  8800,000  a  yoar. 

Manufacturing  sites  somotimcs  commaml  thoir  price  because 
of  intrinsic  advantages.  They  may  ho  near  water  power,  or 
to  a  (loop-water  liarl)or,  or  to  cheap  fuel  and  materials.  Facili- 
ties for  transportation  l)y  railway  toll  no  less  than  water  facili- 
ties. In  tlio  United  States,  where  competition  among  railways 
has  boon  a(  tivo  and  railway  rates  have  been  lower  if  one  lino 
could  bo  played  off  against  another,  a  spot  at  which  several 
linos  moot  has  had  advantages  in  nnich  the  .same  way  as  if 
nature  had  made  the  site  good.  When  once  a  city  has  de- 
veloped, it  continues  to  attract  manufacturing  establishments, 
for  reasons  that  are  often  not  apparent  on  the  surface.  Why 
should  a  premium  Ik  paid  for  promises  in  a  city,  when  premises 
apparently  no  loss  good  can  be  had  at  nmch  lower  rentals  in 
th(^  country  ?  Hero,  again,  the  telophtine  would  seem  to  remove 
the  drawbacks  entailed  by  n>motonoss.  And  yet  the  keen 
calculations  of  shrewd  business  nien,  constantly  weighing  the 
advantage  of  proximity  against  the  higher  rent  charge,  cause 
the  gravitation  of  many  manufactures  to  the  urban  centers 
and  the  snl)urbs  close  to  them.  Easy  acc(>ss  to  customers,  to 
supplies,  to  sulisidiary  industries,  even  to  competitors,  is  one 
factor.  Probably  most  imj-ortant  is  the  plontifulnoss  and 
flexibility  of  the  lalxir  sui)ply,  to  wliich  n-foronco  has  already 
boon  made,'  and  whicli  is  of  particular  moment  in  establish- 
ments whos(>  work  is  siiliject  to  rapiil  lluctuations. 

The  precise  point  at  wliich  a  city's  business  operations  will 
((incontrato,  and  at  which  url)an  rents  will  be  highest,  is  often 
determined  liy  no  natural  or  inherent  causes.  The  site  of  a 
great  ciiy  itsi-If  is  ii  Iced  usually  fixed  by  natural  advantages, 
such  as  a  superb  harixir,  as  in  the  ca<(>  of  New  York  City  and 
San  Krancisco,  or  tlie  contluonco  of  rivers  in  the  neighlntrhood 
of  groat  coal  sui)|)!ics,  as  I'ittsburg,  or  access  to  inland  water 
routo<,  as  Chicago.  Hut  within  the  city,  there  is  usually  no 
reason  why  one  small  area  should  l.e  preferred  to  the  others 
>.S.'r  Honk  It,  ClmptiT  II,  }2. 


80 


THE  DISTRIBUTION  OF  WEALTH 


as  superior  for  business.  It  is  the  gregariousness  of  industry 
that  gives  business  sites  their  value,  just  as  the  gregariousness 
of  men  has  the  same  effect  on  sites  for  dwellings.  Some  one 
center  will  be  resorted  to  by  all,  and  will  be  prized  by  all; 
but  the  causes  which  fixed  the  center  at  Threadneedle  Street 
or  Wall  Street  are  usually  historical  and  complex,  and  some- 
times whimsical. 

The  value  of  sites  for  dwellings  is  explained  by  the  same 
principle,  with  similar  complexities  and  similar  apparent 
anomalies.  Sometimes  such  sites  have  intrinsic  advantages,  — 
broad  and  sunny  streets,  frontage  on  parks  and  open  spaces, 
convenience  of  access.  But  often  the  advantage  is  purely 
factitious.  Nearness  to  one's  kind  is  in  many  cases  alone 
sufficient  to  explain  the  demand  for  some  spots.  Crowded,  noisy, 
and  unhealthful  city  streets  attract  the  working  classes  more 
than  quiet  lanes  in  the  country.  At  the  other  end  of  the 
social  scale,  among  the  well-tonlo,  and  most  of  all  among  the 
very  rich,  snobbish  differences  tell  enormously.  Certain 
streets  are  resorted  to  by  those  who  have  social  distinction. 
Thither  flock  all  who  yearn  for  such  distinction,  —  a  great  and 
growing  multitude,  —  and  sites  believed  to  be  proper  for  the 
select  are  paid  for  at  rentals  limited  only  by  their  incomes. 
The  very  cracks  and  crannies  of  fashionable  districts,  narrow 
side  streets  and  dark  back  rooms,  when  touched  by  this  potent 
charm,  command  high  rentals,  notwithstanding  their  intrinsic 
unattractiveness. 

§  2.  Something  closely  analogous  to  the  tendency  to  diminish- 
ing returns  shows  itself  on  urban  sites. 

Buildings  van  !)(>  pushed  higher  almost  without  limit.  In 
these  modern  days  of  steel-frame  construction,  ten,  twenty, 
thirty,  stories  are  practicable.  But  sooner  or  later  the  stage  is 
reached  where  the  gain  from  additions  to  the  structure  begins 
to  diminish,  and  wlicre  it  becomes  a  question  whether  it  is 
not  better  to  resort  to  l)Mil<linc  on  another  site  than  to  push 
construction  further  on  the  same  site.  When^  the  land  is  used 
for  manufacturinjn  or  mercantile  operations,  that  stage  seema 


URBAN  SITE   RENT 


81 


to  be  reached,  in  American  cities,  with  the  fifth  or  sixth  floor. 
One  rarely  sees  a  building  of  greater  lieiglit  used  for  those  pur- 
poses.    The  poorer  Ught  and  air  on  tlie  lower  floors,  the  cost 
of  lifting  goods  and  materials  (even  with  smooth-running  el(^- 
vators),  the  difficulties  of  supervision,  begin  to  tell,  and  tell  the 
more  as  more  stories  are  added.     Where  buildings  are  used  for 
office  purposes,  in  the  business  centers  of  great  cities  they  are 
often  pushed  much  higher,  at  least  in  the  United  States.     The 
advantage  of  being  at  the  very  heart  of  things  is  so  great  that 
a  multitude  of  persons,  engaged  in  all  sorts  of  occupations,  are 
willing  to  pay  liberally  for  this  faeiliiy ;    and  a  small  city  in 
itself  is  established  in  the  towering  office  building.     But  even 
here  there  is  eventually  a  limit,  though  one  which  the  progress  of 
invention  is  steadily  pushing  higher.     It  must  be  borne  in 
mind,  in  any  case,  that  all  the  sites  cannot  be  used  in  this  way, 
for  then  the  buildings  would  cut  off  too  much  of  each  other's 
light  and  air.     Hence  adjoining  sites  must  be  controlled  and 
limited ;   in  other  words,  taking  the  combined  sites,  the  possi- 
bility of  intensive  use  is  much  more  limited  than  it  appears  to 
be  when  a  single  plot  is  considered  by  itself.     Situations  on  a 
corner,  or  those  which  face  a  public  square  or  other  open  space 
(like  Trinity  churchyard  on  Broadway  in  New  York  City),  offer 
the  possibility  of  investing  an  enormous  capital  on  a  given  area. 
Much  the  same  is  true  where  dwellings  are  put  on  urban 
land.     Here,  also,  buildings  can  be  made  taller,  'liu<  securing 
very  intensive  use  of  sites  advantageously  sitii;itc.l   in  h'.rge 
cities.     Dwellings  for  the  very  poor  as  well  as  for  '       \  ■  r^        h 
can  be  pushed  high;    tenements  for  those  who  must   i  ar 

their  work  (or  think  they  must  be)  and  near  tluir  r,,m<       -s, 
and  great   mansions   or   apartments   for   th<-«'   wlnnn  n 

attracts  to  "choice"   sites.     But  eventuall> .   fvcii  u . 
frame  construction  and  with  elevators  and  tclcplinni-. 
is  reached  where  it  begins  to  be  less  profitublf  to  add  I'lo. 
more  stories.     The  tendency  tn  dintini-^bint-;  return-,  nnd. 
increasing  application  of  more  and  more  l;dior  and  cipifi  • 
the  utiliration  of  tltc  -imie  site,  finally  asserts  itself. 
VOL.  II  — a 


82 


THE  DISTRIBUTIOX  OF  WEALTH 


This  tenrlency  does  not  act  so  steeply  on  urban  land  as  on 
rural  land.  On  a  plot  used  for  ajrrieulture,  diminisliiuj;  returns 
are  encountered  at  a  comparatively  early  staj>;<!.  It  is  true 
that  for  certain  purposes  —  us  for  market  gartleniiiK  or  vino- 
yards —  very  intensive  use  can  le  made  of  a  few  aj^ricultural 
sites;  precisely  as  highly  intensive  use  is  made  of  a  few  urban 
sites.  But  in  almost  all  cases  diminishing  returns  are  re.iched 
comparatively  early  on  agricultural  land,  and  the  obstacles 
which  cause  a  lessening  of  i)nKluct  act  steeply.  On  urban 
land,  on  the  other  hanil,  the  ol)stacles  appear  more  gradually, 
and  hence  there  is  a  larger  choice  between  the  more  and  the 
less  intensive  use  of  the  sites.  One  will  liiul,  side  by  side,  on 
the  same  city  street,  very  higii  l)uildings  anil  comparatively 
low  ones  ;  indicating  that  as  regards  the  additional  stories  on  the 
high  buildings,  there  is  neitlier  any  great  gain  (over  and  above 
return  on  the  cost  of  ccmstruction  and  management),  nor  any 
sharp  tendency  to  a  li's.scning  of  return,  as  the  Iniilding  is  pushed 
higher.  It  would  seem  that  very  la'ge  amounts  of  capital  can 
be  invested  on  some  urban  sites,  es|ecially  on  business  premises, 
with  a  prolonged  stage  at  which  n  turns  are  nearly  constant. 

§  3.  On  urban  land,  as  on  a?;ricultural  land,  there  is  no 
separate  product  ol  the  land.  Nothing  is  automatically  yielded 
by  the  site;  nothing  is  earmarked  as  "rent."  What  happens 
is  that  labor  and  capital  applied  on  some  sites  yield  unusually 
large  returns,  and  that,  the  sites  being  limited,  tlu^  owners  are 
able  to  keep  for  thems{>lv(>s  the  excess  of  return  over  and  above 
what  is  usually  g  ' 

The  yield  on  ttie  advantageous  sites  dejx'nds  in  no  small 
degree  on  the  skill  with  which  th(>y  nr  >  used.  Their  possi- 
bilities an-  not  seen  by  all  piTsons.  The  bidding  for  them 
comes  most  actively  from  those  who  have  the  shrewdness  to 
see  what  can  be  done  on  lliem  iiiid  the  courage  to  put  their 
calculations  to  the  test  of  actual  trial.  Mistakes  are  some- 
times made,  and  loss(>s  incurreil,  bv  those  who  lease  or  buy 
city  land  on  high  terms;  while  at  other  times  success  and  un- 
usual profit  follow  from  its  ingenious  utilization. 


URBAN  SITE   RENT 


83 


For  example,  the  office  building  which  ■  .  ^trikins  a  feature 
of  American  cities  is  the  result  of  a  process  of  gradual  evolu- 
tion. Successive  sets  of  persons  have  devised  more  and  more 
elaborate  utilization  of  central  sites,  —  new  methods  of  con- 
struction, higher  buildings,  more  convenient  service.  Each  im- 
provement entaileil  a  certain  ri.-k;  each,  if  fortunate,  promjitly 
had  a  host  of  imitators.  Each  successful  venture  inured  to 
the  advantage  first  of  the  owner  of  the  particular  site,  and 
later  to  that  of  the  owners  of  similar  sites.  Very  connnonly,  in 
American  cities,  the  innovator  who  has  in  mind  a  new  use  of 
the  land  (say  through  a  more  elaborate  building)  will  buy  it 
outright  from  the  previous  owniM-  at  a  price  based  on  the  tra- 
ditional ways  of  using  it.  Then,  if  he  succeeds  in  hi.s  venture, 
he  finds  the  return  on  his  total  investment  iiandsome,  and  hia 
site  worth  in  the  market  m^re  than  it  was  before.  Sometimes 
he  leases  the  lanil  for  a  long  term,  and  so  enjoys  the  gain  during 
the  period  of  his  k  ase.  Sometimes  tli(>  owner  himself  is  slirewd 
enough  and  energetic  enough  to  use  his  site  in  such  a  way  as 
to  get  the  maximum  yield.  In  whatever  way  the  more  effective 
and  profitable  utilization  c()mes  about,  it  soon  has  plenty  of 
imitators,  and  the  new  n)"thod  becomes  the  common  one  for 
sites  of  the  same  sort ;  to  be  succeeded  in  due  time,  especially 
if  the  city  continues  to  grow,  by  other  still  more  ingenious 
methods.  But  success  does  not  invarial)ly  follow.  Mistakes 
and  miscalculations  occur,  as  in  every  kind  of  investment. 
Often  enough  it  happens  that  a  f)roj<>ctor  pays  high  for  a  site, 
and  erects  an  elaborate  building,  perhaps  one  a<lapted  to 
special  uses,  in  the  expectation  of  meeting  a  brisk  detnan<l  for 
the  quarters  provided  in  it  ;  but  finds  that  he  has  overestimated 
the  growth  of  business  ii;  the  city,  or  the  demand  for  the  i)ar- 
ticular  accommodation  which  he  olTers. 

In  every  large  city  there  are  so-called  "real  otate  men" 
who  make  it  a  business  to  manage  investments  in  urban  realty, 
partly  for  them>"Ives,  partly  for  othr-rs.  Among  <liem  a  process 
oi  M'lcetion  cauM's  the  less  shrewd  to  <irop  out,  thf  more  shrewd 
to  come  to  the  fore.     I'sualiy  tliere  are  some  among  them  who 


84 


THE  DISTRIBUTION  OF  WEALTH 


are  gifted  with  a  sort  of  instinct  for  discerning  the  possibilities 
and  adaptations  of  the  various  grades  of  city  land,  and  they 
commonly  make  handsome  returns,  souK'times  fortunes,  either 
from  the  purchase  and  sale  of  sites  or  as  managing  agents  for 
the  owners.  Tliey  set  the  pace,  so  to  speak,  and  are  followed 
by  the  rank  and  file.  There  are  always  others,  equally  ven- 
turesome hut  l(>ss  shrewd  or  less  fortunate,  whose  experiments 
do  not  succeed,  and  who  lose  money  for  themselves  and  their 
backers.  The  spur  of  individual  profit  and  the  stimulus  of 
competition  are  no  less  necessary  here  than  in  other  parts  of 
the  industrial  world  for  the  most  effective  employment  of  the 
factors  of  production.  And  here  also  the  difficult  problem  is 
that  of  so  adjusting  rewards  that  enough  shall  be  earned  by 
projectors  and  managers,  and  not  more  than  enough,  to  induce 
the  full  exercise  of  their  industrial  talents. 

§  4.  The  investment  of  capital  on  urban  sites  is  usually 
more  irrevocal)le  than  on  rural  sites.  It  is  true  that  there  are 
agricultural  improvements,  such  as  operations  for  irrigation  or 
permanent  drain  ",  which  last  indefinitely,  and  which,  when 
once  made,  are  irrevocable.  Hut  most  work  done  on  farms 
exhausts  its  efTects  in  a  short  time  —  usually  in  a  few  years  — 
and  the  choice  re<-  .rrently  presents  itself  whether  any  particu- 
lar application  of  labor  and  cai)ital  shall  be  repeated  or  shall 
be  discontinued.  The  investment  of  cajiital  on  urban  land, 
on  the  cDtitiviry,  is  usually  such  that  the  improvements  last  a 
very  long  time,  and  henc<>  that  a  change  is  made  with  diffi- 
culty. 

Thus,  in  many  seaports,  tide  flats  or  shallow  stretches  have 
been  filled,  and  deep-water  sites  secured.  For  such  an  invest- 
iiieiil  there  is  iki  wear  ami  tear,  ami  no  jMissibility  of  shifting 
till'  (■;ii)itiil  in  the  niimner  in  ..hii-h  it  may  be  shifted  when 
invested  in  niachimry,  by  letting  it  wear  out,  and  replacing 
with  soinethiiig  else.  The  changed  land  surfa<'e  is  there  once 
lor  all,  f^ii  it  is  whenever  land  has  been  ievelecl  or  filled. 
The  ciise  is  similar,  though  not  so  extreme,  with  buildings.  It  is 
true  that  buildings  do  not  last  forever;    but  they  may  lust  for 


URBAN  SITE  RENT 


85 


generations,  even  for  centuries.  Commonly  they  have  to  be 
kept  in  repair,  in  order  that  they  may  be  used  at  all.  So  long 
as  they  yield  anything  over  and  above  the  expen.se  of  repairs, 
it  is  worth  while  to  maintain  them,  even  though  the  yield  he  but 
a  very  slight  return  on  what  has  been  invested.  It  will  be 
profitable  to  tear  down  an  old  or  ill-ailapted  building  and  re- 
place it  with  a  new  building,  only  when  the  new  one  promises 
to  yield  not  only  enough  to  pay  a  satisfactory  return  on  its 
own  cost,  but  in  addition  enough  to  compensate  for  the  loss 
of  net  revenue  which  the  old  still  yielded.  (!()nse(iuently  the 
ar 'iquated  .structure,  even  though  it  does  not  utilize  the  site  in 
the  best  way  or  to  the  full  extent,  remains  undisturbed  for  a 
long-  time,  yielding  such  a  return  as  its  conveniences  may  make 
possible.  Where  a  city  is  growing  rapidly,  the  demand  for 
new  structures  will  cause  the  stage  to  be  reachinl  at  a  compara- 
tively early  date  when  it  will  pay  to  raze  to  the  ground  ati 
obsolete  building,  and  substitute  something  new  and  up-to- 
date.  Where  a  city  grows  slowly,  still  more  where  its  popula- 
tion is  stationary,  such  a  buililing,  especially  if  thorouglily  put 
together  and  in  little  need  of  repairs,  may  remain  in  use  in- 
definitely long. 

In  other  words,  when  once  an  urban  site  has  been  adapted 
to  use  i)y  an  investment  of  capital,— and  the  common  and 
typical  mode  of  investment  is  that  of  erecting  a  i)uilding  on  it, 
—  the  return  on  it  is  irrespective  of  the  extent  of  the  invest- 
ment. The  parcel  of  'iinjiroveil"  n-alt.N -land  and  build- 
ing a>  one  ctmiplex  cams  an  amount  determined  solely  by 
its  serviceability  for  business  or  dwelling  uses.  It  is  only  in 
the  long  run  that  the  dilTerence  becomes  clear  betweeu  rent 
ami  interest,  between  that  return  which  goes  to  the  <iwner 
of  the  site  as  such  and  that  which  goes  to  the  owner  of  the 
capital  put  oi»  it,  .\s  time  goes  on,  buildings  do  wear  out,  old 
ones  lire  torn  down,  and  new  ones  nre  sulistituteil  in  their 
nlHce  in  order  'o  put  the  land  to  its  most  prolital)le  use.  Laiiil- 
owners  as  su<h  then  s<'cure  the  full  dilTerential  gain  which  their 
mite  if,  capable  of  alTording.     Hut   the  slowness   with   which 


86 


THE  DISTRIBUTION  OF  WEALTH 


¥     I 


capital  invested  on  land  can  be  shitted  may  prevent  for  a  long 
time  the  attainment  of  this  maximum. 

None  the  less,  it  is  uHually  i)ossihle  to  ascertain  with  a  Rood 
degree  of  accuracy  wliat  is  the  gum  or  rent  accruing  from  an 
url)an  site  a«  such.  Wliile  tlie  ways  of  using  it  change  iron) 
time  to  time,  there  is  at  any  given  stage  an  estal)lished  or 
normal  utilization,  just  as  there  is  at  any  given  time  an  estab- 
lished or  normal  method  of  manufacturing  cotton  goods  or 
boots  and  shoes.  It  is  jiracticable  to  measure  what  are  the 
income-yielding  possibilities  of  the  site  as  sucli  under  these 
normal  conditions.  Hence  the  selling  value  of  the  land,  which 
is  based  on  its  income-yielding  possibilities,  can  also  be  meas- 
ured with  sufhcicnt  exactness.  It  is  so  measured,  in  the  higgling 
of  the  market,  l)y  the  current  sales  of  land.  It  is  measured  by 
the  a.ssessment  of  land  for  purposes  of  taxation.  The  rent 
which  the  landowiu>r  gets,  tl.ough  it  is  not  eairnarked  as  a  sejja- 
rate  return,  and  thougli  it  is  nuich  alTecti'd  l>y  the  use  to  whicii 
the  site  happens  to  l)e  i)ut,  is  none  the  less  distinguishabh' 
from  the  interest  whii  h  goes  to  him,  or  to  some  lessee,  upon 
an  investment  of  capital  in  the  land. 

't  may  seem  that  the  differcnci-  let  ween  rent  and  interest 
is  clear  in  the  case  of  land  leased  for  a  grou!id  rental.  In  (ii'eat 
Hritain  urban  sites  are  commonly  lei.scd  for  u  lonji  term  (usually 
ninety-nine  years),  and  built  on  l>y  the  lessee.  Leases  on 
grounil  rent  are  not  unknown  in  American  citirs,  and  are  be- 
coming more  fre<iueiil  ;  liiou^'.h  the  conunon  custom  liere  is  >till 
for  the  liuiilowncr  to  |)\it  u))  the  iiuilding  hiiUM'if.  When 
ground  rent  is  pai('  a  lessee  to  the  landowner,  the  amount 
receivjvl  by  the  latter  is  almost  alwiiyr  economic  rent  pure 
and  Himi)le.  In  (Irt-at  Hritnin  wIkmc  the  owner  of  the  site 
customarily  does  nothiiiji;  \\liiilev<'r  to  improve  it,  his  income 
seems  to  be  dearly  of  this  nature. 

Hut  it  by  no  mcMis  necessarily  follows  that  the  whole  eco- 
niitnli*  !'e!^t  of  the  site  triH'H  to  I*.!!!!  '.  mul  it  in.  eo!ieei\'iible  tlijit 
ho  may  receive  under  his  lease  more  than  that  rei\t.  The 
long-term  lessee  may  pocket,  for  many  years,  part  of  the  strict 


URBAN  SITE  RENT 


87 


rent  of  the  site.'  The  increase  of  population,  or  its  greater 
coneentration  in  a  partii-uhir  city,  may  cause  the  site  to  become 
more  advantaseous  than  it  was  exptHitoil  to  be  when  his  Iciaso 
W!us  made.  The  i)uihhnKs  which  the  lessee  erects  on  it  may 
bring  a  return  mudi  more  than  sufficicnit  to  |)ay  interest  and 
depreciation;  tliere  is  a  surphis,  wliicli  accrues  to  him  through 
his  lucky  Imrgain.  It  is  possilile,  of  course,  that  the  reverse 
may  happen.  The  site  may  lu'coine  not  more  advantageous 
than  was  expected,  but  loss  so;  and  the  landlord  will  then 
receive  under  his  bargain  more  than  his  site  proves  to  l)e  worth. 
During  the  last  hundretl  years,  when  population  in  all  the 
civilized  countries  has  not  only  grown,  but  has  crowdeil  more 
and  more  into  the  cities,  mucli  the  more  connnon  experience 
has  been  tliat  ninety-nine  year  lessees  have  jMjcketed  part  of 
the  site  rent.  When  long  lea.'<es  of  this  sort  reach  the  eiul  of 
th(ir  term,  there  is  KHnetimes  a  wonderful  accretion  for  the 
heirs  or  successors  of  the  lessor  of  a  century  before.  An  ancestor 
of  the  Duke  of  Picdford  in  the  eighteentli  century  leased  largo 
tracts  tm  what  was  then  tlii>  edge  of  l-oiidon,  for  ground  rent. 
Ninety-nin(!  years  later,  when  the  land  was  in  the  heart  of  the 
grciat  metropoli^i,  his  descendant  n'aped  a  huge  harvest  of 
urban  site  rent.  Such  windfalls  bring  into  sharp  relief  the 
meaning  of  "unearned  increment,"  and  they  suggest  also 
questions  as  to  the  possible  limitation  of  private  ownership  in 
urban  land,  to  which  we  shall  presently  give  attention. 

§  ').  Heferenee  has  been  made  to  'real  estate  men"  and  to 
the  higgling  and  bargaining  by  which  the  prices  of  city  sites 
are  (ixed.  Speculation  in  urban  hiiid  i-;  a  familiar  phenomenon 
in  modern  communities,  Kspecially  where  the  law  of  real 
property  nuikes  easy  the  transfer  of  title,  wites  an-  bought 
"for  a  rise,"  and  are  pjissed  from  hand  to  hand  at  fluctuating 


'  III  till'  city  (if  \i  w  ^■llrk  I  M-,,  -  f,f  .iti<  iirr  nfd  n  ihmiIi'  fm  t«i  nty  yiiir^i  ii»  :i 
Ktiliiilnliil  ronfiil.  with  privil.ui'  nf  icti.  »  il  fur  ii    c  rniMl  Hinl  |(i  rlKip-  lliiril  t>rtii 

"f  t  tVi'lily    >  I'llIM  ,     liir  rf-ltt:il«   f'H    i  tie  il' i' ili  I' iliili    ,    •Mll«  In  ?M'  IlX'-'i   IiV    HI  lui  i  »il  i"i  i. 

or  111!  till'  liasi^  iif  II  lixnl  piTi  Tii'imi'  (fmir  (iir  ic'it,  ^iiy)  'if  tin  ri|i|inii-"  'I  ■<!  llmu 
vnhin  iif  till'  Iniid,  SimIi  mi  mr  imu'  iim  tit  iiiuki  m  it  tiinri'  n  rl:iiu  tliut  tin  luinl- 
(iwiicr  will  m-curi'  tlip  full  m  imuiiiii'  nut. 


88 


THE  DISTRIBUTION   OF  WEALTH 


I  ! 


prices  according  to  the  calculations  of  sellers  and  buyers.  In 
citi  that  grow  rapidly,  or  are  expected  to  grow  rapidly,  the 
speculation  is  sometimes  furious.  The  bidders  for  promising 
sites  overreach  themselves,  and  in  the  end  some  among  them 
incur  heavy  losses;  while  others,  more  shrewd  or  fortunate, 
pocket  handsome  gains  from  the  accruing  rise  in  the  value  of 
land  or  fr-^n  the  mistakes  of  their  fellow  speculators. 

In  all  th.s  there  seems  to  be  purely  unproductive  labor,  as 
that  phrase  was  defined  before '  No  small  amount  of  energy 
and  skill  is  given  to  figurings  and  calculations,  bargainings  and 
perhaps  intrigues,  whose  outcome  is  simply  to  cause  o\w  person 
rather  than  another  to  get  the  gain  from  growing  site  value. 
From  the  social  point  of  view,  this  seems  to  Ik;  waste.  True, 
it  is  not  (luite  like  ordinary  gambling,  where  one  person  gain.s 
precisely  what  the  other  loses.  Unless  real  estate  speculation 
be  overdone,  one  person  gains  only  something  which  another 
fails  to  gain.  Nevertheless  nothing  appears  to  be  contributed 
to  the  conmiunity's  income. 

This  in  the  main  is  true ;  yet  it  is  subject  to  some  qualifica- 
tion. .Speculation  in  city  land  does  contribute  something  to 
the  community's  welfare,  in  so  far  as  it  promotes  the  most 
effective  use  of  the  land.  It  stimulates  those  who  are  engaged 
in  it  to  ferret  out  all  the  possibilities.  It  tends  to  bring  the 
and  into  hands  which  will  utilize  it  to  the  utmost.  The  suc- 
cessful siM'culator  is  commonly  a  projector  who  hits  on  new 
and  more  effective  uses  of  the  sites,  or  a  piTson  who  frater- 
nizes with  such  projectors  and  weighs  their  sclH'mes  with 
judgment. 

Here,  as  in  almost  all  of  the  working  of  the  syst(>m  of  private 
propel ty,  the  (luestjon  is  one  of  the  balance  of  advantage  and 
disadvantage.  Murh  the  same  question  presented  itself  in 
the  «  'scussion  of  sju'culation  in  commodities,  such  rs  grain  autl 
cottoi.  -  Speculation,  whether  in  g(M)ds  or  in  land,  has  its 
juivaiit!,  'cs  lor  the  coninuinily  ;  but  more  persons  <>ngage  in  it, 
niid  more  Jalior  '^  given  to  it,  than  is  necessary  to  secure  that 
'  H<i'  Uiiiik  I,  ( 'ImptiT  a.  'S,|.  abdvc,  Hook  II,  ('liiii)lii  11. 


URBAN  SITE  RENT 


89 


advantage.  There  is  no  small  diversion  of  time  and  energy 
to  what  must  be  termed  unproductive  operations.  How  far 
these  can  be  restricted  without  sapping  tlic  inducements  to 
improvement  is  part  of  the  fundamental  prol)lem  oi"  modern 
society,  —  that  of  promoting  both  progress  and  equality. 

Speculation  itself,  whether  of  the  serviceabU-  or  tlie  unproiiuc- 
tive  kind,  is  one  of  the  factors  on  which  rests  the  demand  for 
urban  business  sites  What  proximately  determines  the  demand 
for  such  sites  is  the  facilities  they  afford  for  money-making. 
While  pecuniary  gain  arises  conunonly  from  the  use  of  sites  in 
ways  that  really  add  to  the  well-l)eing  of  the  community,  —  as 
when  premises  are  used  for  trade  or  manufacturing,  —  it  may 
come  also  when  a  site  is  used  for  gambling  operations.  A 
great  lottery,  if  permitted  to  exist  by  the  law  (as  it  still  is 
in  some  European  countries,  to  their  shame),  would  pay  hand- 
somely for  premises  in  the  heart  of  a  great  city.  The  brokers 
through  whom  speculative  «;ambling  is  carried  on  are  among 
the  most  insistent  bidders  for  quarters  in  the  financial  districts 
of  large  cities;  for  they  must  be  near  the  center  of  things  to 
reach  their  customers  and  execute  their  customers'  orders. 

§  6.  Urban  land  values  and  urban  rent  iir(>  sometimes  nmtcd. 
As  has  just  been  said,  the  precise  point  at  which  a  <'ity  .<shall 
arise  is  not  settled  sol.'ly  by  natural  caus<'s;  still  less  do  such 
causes  settle  the  precis(>  si)ot  within  a  city  which  shall  have 
larg-  site  value.  Projectors  sometim(>s  try  to  direct  the  forces 
that  bring  urban  rent  into  existence.  A  large  industrial  enter- 
prise (»r  set  of  enterprises  nniy  be  established  in  a  small  village, 
or  on  a  spot  where  there  had  not  been  even  a  village,  in  the 
expectation  that  about  it  a  city  will  grow  up.  with  its  atten.lant 
land  values;  the  owners  (or  tnanagers)  buying  up  the  land  in 
advance  and  expecting  to  pmlit  by  its  sale  i.r  le.-ise.  Thus  the 
Piillman  Company  establi>lie,|  the  town  of  Pullman,  near 
Chicago,  The  Steel  ('(.rporation  deliberately  ereiiled  Cary. 
A  great  railway  rompanv,  i.\  placinK  its  woikshojis  at  one  ^jxit 
or  another,  may  iiilluetic(<  markedly  the  growtli  of  a  c  ly. 
And  within  a  city  th.  >aine  sort  oi  intentional  direction  of  the 


I 


I 


I    ii' 


90 


THE  DISTRIBUTION   OF  WEALTH 


urban  currents  may  bo  attempted.  Two  or  three  great  firms 
or  banking  houses  may  transfer  their  operations  to  a  new 
street  and  carry  business  after  them.  Similarly,  as  to  sites 
for  dwellings,  persons  of  wealth  and  social  repute  may  move 
to  a  new  district,  and  give  it  the  prestige  of  fashion.  By  pur- 
chasing in  advance  the  sites  they  propose  to  bring  into  favor, 
they  may  secure  for  themselves  the  newly  arising  land  values. 

In  most  such  cases,  it  is  true,  land  values  are  guided  or 
diverted,  rather  than  created.  If  population  is  the  same,  and 
is  distributed  in  the  same  way,  site  rent  is  sure  to  arise  in  any 
event.  Then  it  is  possible  only  to  cause  it  to  appear  in  one 
place  rather  than  another;  not  to  add  to  its  amount  Yet 
there  are  cases  where  its  amount  may  be  atT"cted,  as  in  the 
skillful  development  of  a  "residential"  sul)urb  or  section,  or  in 
that  of  a  well-planned  manufacturing  center. 

All  such  operations,  however,  whether  they  create  or  merely 
divert  urban  v.-dues,  are  attended  with  risks  even  greater  than 
those  of  ordinary  investment  on  the  land.     VVh<>ri>,  for  exampl.', 
a  new  city  is  sought  to  be  created,  streets  must  be  made  ;  water 
mains,  sewers,  and  other  convenienc-s  put  in ;    and  the  whole 
depends  for  its  profit  on  the  fullillmeiit  of  the  expwteil  growth. 
Some  years  ago.  a  set  of  projectors  tii'd  t.'  create  a  manu- 
facturing town  named   Depew  near  the  city  of  HuiTalo,  and 
spent  much  money  in  preparatory  operati<ins.     Rut  they  found 
it  difficult  to  get  either  industries  or  people  to  betake  thein- 
.selves  to  Depew,  and  the  final  outcome  was  failure  an<l  loss. 
So  it  may  be  with  atteini)ts  to  turn  urban  currents  toward  new 
streets  or  outlying  districts.     The  favor  of  the  crow.l  —  whether 
it  be  a  set  of  iuisiness  men  or  of  the  idle  ri.'li    -  is  proverbially 
fickle.     Here,  again,  shrewdness    and    personality    tell.     Some 
individuals  will  successfully  undertake  such  ventures  ami  over- 
come obstacles,  where  others  will  fail.     The  higln'r  site  vahi.'S 
which  may  l>e  attaine.l  in  places  so  dev.-loped  will  not  r.'iu-esent 
economic  rent  pure  and  simple;    tliry  will  be,  to  a  Rivnt- r  or 
less  degree,  compensation  for  risk  and  -arnings  ..f  manrriug 
a«-tivity. 


URBAN  SITE  RENT 


91 


There  are  cases,  on  the  other  hand,  in  which  the  risk  is 
small,  even  negligible.  When  a  government  establishes  a 
great  workshop  or  a  large  educational  institution,  it  is  well- 
nigh  certain  that  population  will  be  directed  to  the  favored 
spot,  and  that  some  intiuence  on  site  values  will  appear.  When 
an  important  railway  fixes  on  a  given  town  as  its  "division 
point,"  that  is,  a  center  for  administration  and  operation,  or 
places  its  manufacturing  and  repair  shops  there,  the  result  is 
no  less  certain.  It  may  chance  that  the  managers  and  directors 
of  the  railway,  who  know  in  advance  what  is  to  happen,  can 
then  make  money  by  clandestine  purchase  of  sites, — a  semi- 
corrupt  abuse  of  i)ositions  of  trust  which  unfortunately  has 
too  often  appeared  in  connection  with  railway  management 
in  the  United  States.  In  such  cases,  the  gain  sliould  be  reaped, 
if  by  any  individuals,  by  the  stockholders  of  the  railway  as  a 
whole,  not  by  a  clique  of  managers.  Better  still,  it  should  be 
reaped  by  no  individuals,  but  should  go  to  the  entire  com- 
munity. 


CHAPTER  44 


I 


Rent,  concluded 

§  1.   Mines  present  a  case  in  some  respects  similar  to  that 
of  urban  and  agricultural  sites,  in  some  respects  different. 

There  are  obvious  differences  between  individual  mines. 
Some  are  richer  than  others,  or  more  advantageously  situated, 
and  these  yield  a  differential  return  to  their  owners.  If  we 
assume  free  competition  and  mol)ile  investment,  we  may  reason 
that,  as  the  demand  for  a  given  mineral  (say  coal)  increases, 
more  and  more  mines  will  be  put  in  operation,  —  the  most 
productive"  first,  then  those  less  so ;  that  the  coal  will  normally 
sell  for  enough  to  repay  all  expenses  of  production  on  the 
margin,  that  is,  at  the  poorest  mine  in  use ;  and  that  all  better 
mines  will  A'ield  a  surplus  income  which  is  strictly  rent. 

But  the  conditions  of  mobile  investment  hold  good  only  to 
a  limited  degree  of  mines.  Mobility  of  investment  presupposes 
not  only  ease  of  transfer  for  capital,  but  also  a  generally  dif- 
fused knowledge  of  the  prospects  of  profit.  Neither  of  these 
conditions  obtains  in  m-'ning,  which  calls  for  an  irrevocable 
and  usually  very  large  investment,  and  involves  a  high  degree 
of  risk  and  uncertainty. 

There  is  some  risk  in  all  use  of  tho  land.  The  risk  probably 
is  l(-ast  in  the  long  run  (that  is,  over  a  series  of  years  long 
enough  to  equalize*  the  accidents  of  th(>  seasons)  in  the  case  of 
agricultural  land;  for  the  possibilities  of  such  land  are  rciuUly 
discerned  by  any  capable  farmer.  It  is  groater  in  the  case  of 
url>an  sites,  where  there  is  th"  chance  of  ill-adapted  buildings, 
of  shifting  population,  of  the  caprices  of  business  movements. 
It  is  greatest  in  the  case  of  mines  ;  though  varying  again  for  dif- 
ferent sorts  of  mines.  Even  though  prospecting  is  sometimes 
facilitated  or  encouraged  by  a  prelimin:iry  geo'o;\;ical  and  phys- 
iographic survey  (such  as,  for  example,  that  which  ascertains 

92 


RENT 


93 


the  carboniferous  area  of  a  country)  and  even  though  it  may  thus 
be  known  that  abundant  mineral  underlies  a  given  area,  — 
none  the  less,  expensive  trial  is  needed  to  ascertain  how 
much  there  is,  of  what  quality,  of  what  ease  of  procurement. 
When  once  a  coal  mine  has  been  opened  and  put  into  opera- 
tion, it  is  usually  possible  to  judge  how  long  the  sui)plic's  will 
last  and  what  will  be  the  expense  of  getting  them  to  market; 
but  even  this  is  in  some  part  a  matter  of  guesswork.  The  case 
is  similar  with  iron  ore.  Here,  also,  drilling  and  prospecting 
will  often  show  how  large,  how  good,  how  accessible,  is  the  ore 
body ;  but  this  preliminary  knowledge  is  got  only  by  scouring 
a  wide  territory.  A  multitude  of  failures  in  "prospecting"  is 
relieved  by  occasional  success.  Where  minerals  occur  in 
pockets,  the  chances  both  of  failure  and  success  are  greatest, 
and  the  miner's  operations  are  akin  to  gambling.  Such  was 
the  case  with  the  so-called  bonanza  mines  of  the  precious 
motals  in  Nevada.  Sime  discoveries  of  extraordinarily  rich 
pockets  of  gold  and  silver  brought  fortunes  to  their  owners. 
On  the  other  hand,  there  were  unnumy)ered  failures,  tempted  by 
deceptive  surface  indications.  Copper  mining  is  notoriously 
uncertain  and  speculative.  In  all  such  cases,  even  when  the 
first  excavations  are  promising,  there  is  a  .stage  of  doulit,  when 
capital  must  be  invested  in  the  form  of  shafts,  machinery, 
concentrating  and  smelting  works.  Venturesomeness,  judg- 
ment, persistence,  and  efficient  management  are  essential  to 
ultimate  success. 

Where  there  are  many  losses,  there  must  be  corresponding 
gains.  The  traveler  througli  such  states  as  Colorado,  Nevada, 
IMontana,  Idaho,  .\riz<ma,  California,  sees  the  sitles  of  the  hills 
and  mountains  scarred  by  innumerable  openings,  each  with  its 
telltale  pile  of  rock.  The  immense  majority  of  these  ventun^s 
were  failures.  Were  it  ncjt  for  the  chance  of  some  great  prizes, 
all  this  necessary  work  of  exploration  would  not  have  been 
undertaken.  Under  >\u\\  conditions  a  high  return  on  the 
lucky  ventures  does  not  constitute  a  true  surplus.  Nor  is  it 
easy  to  say  whether,  ou  the  whole,  the  gains  in  successful  tnin- 


94 


THE  DISTRIBUTION  OF  WEALTH 


;  f 


I!  .1. 


ing  ventures  suffice  to  offset  the  losses  in  the  unsuccessful. 
Prizes  often  have  an  undue  effect  on  the  imagination.  The 
unfaiUng  attractiveness  of  a  lottery  (in  which  it  is  obvious  that 
the  speculators  as  a  body  must  lose)  proves  that  where  there 
is  a  chance  of  great  gain  from  a  lucky  stake,  men  will  often 
pay  for  the  chance  more  than  its  actuarial  value.  As  has 
already  been  noted,  there  is  ground  for  supposing  that  in 
mining  for  the  precious  metals  in  former  times  the  total  outlays 
were  not  recompensed  by  the  total  net  earnings.'  At  least  a 
possibility  of  the  same  sort  exists  as  regards  mining  operations 
in  general. 

It  is  probable  that  in  many  mining  ventures  the  risk  is  less 
now  than  it  was  in  former  days ;  whil(\  on  the  other  hand,  the 
need  of  large  initial  investment  is  greater.  With  the  advance 
in  geological  and  mineralogical  knowledge,  it  is  much  more 
possible  to  infer  from  the  surface  outcrop  or  from  experimental 
borings  the  quality  and  quantity  of  what  is  underneath.  The 
improvements  in  treating  ores  have  made  available  low-grailo 
ores  of  gold,  silver,  copper,  lead,  such  as  occur,  not  in  pockets, 
but  in  continuous  veins.  This  is  the  case,  for  example,  in  the 
gold  mines  of  South  Africa,  from  which  so  great  a  supply  of 
gold  has  l)een  secured  during  recent  years.  Here  mining 
operations,  when  once  the  body  of  ore  has  been  found,  are  in 
no  gr(>at  degree  speculative;  and  the  yield  on  the  better 
sources  of  supply  has  more  the  nature  of  a  true  surplus  or  rent. 
The  same  is  the  case  with  much  mining  of  iron  ore  and  coal  in 
modern  times,  where  the  mineral  body  can  be  surveyed  and 
appraised  in  advance  with  some  measure  of  certainty.  None 
the  less,  —  especially  in  view  of  lti(>  heavy  investment  in  dig- 
gings and  machinery  required  by  modern  mining  methods,  — 
risk  is  gn-ater  than  in  most  industrial  ojicrations  above  ground. 

There  is,  in  a  sense,  a  tendency  to  diminisliiug  retunis  in 
mines.  Yet  in  this  regard,  also,  the  general  reasoning  which 
underlies  the  princi[)le  of  rent  must  be  qualified  in  its  applica- 
tion to  mining. 

>  Sec  Book  III,  Chapter  19,  {  1. 


RENT 


95 


In  any  one  mine,  there  is  often  —  probably  in  a  majority  of 
cases  —  a  tendency  to  lessening  jneld  with  increasing  depth. 
Pumping  to  keep  it  free  of  water  becomes  more  costly,  and 
minerals  must  be  hoisted  farther  to  bring  them  to  the  surface. 
So  it  is  with  the  tin  mines  of  Cornwall,  which,  after  centuries 
of  working,  have  now  been  e.xtendeti  beyond  the  shore  line  far 
under  the  bottom  of  the  sea.  It  is  the  case,  too,  with  the 
anthracite  mines  of  Pennsylvania.  And,  in  the  end,  every 
mine  reaches  its  absolute  limit.  A  mine  is  not,  like  agricultural 
land  or  an  urban  site,  a  permanent  instrument,  enabling  the 
investment  of  capital  to  be  continued  without  limitation  of 
time.  Its  store  is  fixed,  —  even  though  sometimes  very  large,  — 
and  when  that  ston*  is  exhausted,  there  is  not  diminution  of 
return,  but  complete  cessation. 

Against  these  tendencies  to  diminishing  return  and  ultimate 
exhaustion  must  be  set  the  possibilit\',  even  the  probability, 
of  the  discovery  of  new  sources  of  supply.  The  total  land 
area  available  for  agriculture  (even  though  there  are  sometimes 
unexpected  cr^f^nings)  is  known  with  sufficient  accuracy.  But 
what  is  cc  ed  in  the  bowels  of  the  earth,  must  always  bo 

more  or  less  mcertain.  The  nineteenth  century  v\as  marked 
by  the  finding  of  wonderful  mineral  resourc.  'rcat  Britain 

there  was  the  discovery  of  the  great  Scotch  a.  •  deposits 

at  the  opening  of  the  centii'  v,  and  of  the  Cleveland  deposits 
(on  the  Northeast  Coast)  in  the  middle.  In  the  United 
States,  after  the  coal  deposits  of  the  Pittsburgh  region,  came 
those  of  Ohio,  Indiana,  and  Illinois.  Not  less  important  were 
the  great  copper  deposits  r)f  Michigan,  Montana,  and  Arizona, 
discovered  successively  after  the  Civil  War,  and  the  iron  ore 
deposits  of  the  Lake  Superior  region,  of  even  n. jre  recent  ex- 
ploitation. The  gokl  mines  of  South  Africa  h  .'c  been  found 
within  the  same  recent  period.  It  is  known  that  there  are  other 
untapped  resources,  such  as  the  great  iron  and  coal  deposits 
of  China,  the  coal  regions  of  Alaska;  and  iherc  may  be  >tiil 
others  not  yet  dreamed  of.  Notwithstanding  the  limitations  of 
each  single  deposit  in  the  earth's  crust,  mankind  may  look 


i  t  r 


n 


u 


f  =■■ 


96 


THE  DISTRIBUTION  OF  WEALTH 


forward,  for  long  ages  to  come,  to  an  increase  rather  than  to  a 
diminution  of  its  available  mineral  resources. 

§  2.  The  owner  of  a  mine,  when  he  leases  it  to  another  for 
working,  usually  gets  a  royalty,  —  a  fixed  payment  of  so  much 
per  ton.  Royalties  naturally  vary  with  the  quality  of  the 
minerals  and  the  ease  of  their  extraction.  They  are  a  rough- 
and-ready  way  of  carving  out  the  economic  rent.  They  are 
not  necessarily  in  the  nature  of  rent;  for  where  a  mine  has 
been  found  by  "prospecting,"  with  all  the  risk  of  possible 
failure,  the  payment  may  stand  for  no  real  surplus.  But 
where  royalties  are  paid  in  well  explored  countries,  on  minerals 
whose  quality  and  value  are  reasonably  well  known,  they  are 
simply  rent.  Such  seems  to  be  the  case  with  the  royalties  on 
English  coal  mines. 

It  is  argued  by  some  able  economists '  that  a  royalty  is  in 
any  case  different  from  rent ;  or  rather,  that  there  is  on  every 
mine  some  sort  of  payment  to  the  owner,  or  revenue  for  him, 
and  that  even  the  poorest  mine  will  yield  something  i..  .le 
nature  of  a  royalty.  The  better  mines  yield  in  addition  a  .rue 
rent,  disguised  as  a  further  or  ampler  royalty  pavinont.  The 
ground  for  this  contention  is  that  a  mine  contains  a  fixed  store, 
and  that  the  owner  will  not  consent  to  its  pro  tanto  exhaustion 
unless  he  receives  some  recomi,  ^nse.  But  I  am  skeptical  of 
the  validity  of  this  reasoning.  The  fact  that  a  store  is  phys- 
ically limited  does  not  enable  its  owner  to  secure  a  price. 
Sand  and  clay  are  thus  limited ;  but  the  available  quantity  is 
so  abundant  that  a  clay  pit  or  sand  deposit  is  worth  nothing 
unless  it  has  an  advantage  of  situation  It  may  be  doubted 
whether  any  payment  at  all,  royalty  or  what  not  can  be  secured 
by  the  owner  of  the  very  poorest  mine,  —  assi)  "ng  he  has 
done  nothing  to  dcveloi)  it.  Deposits  of  this  sort  are  at  the 
margin  of  utilization  and  at  the  margin  there  is  no  surplus  of 
any  sort.     Probab'y  no  mine  in  its  entirety  is  on  the  margin ; 


'  This  is  Profpssor  MurshiiU's  view  ;  Principles  nf  Economics,  Book  V,  ChapfiT 
X,  S  6  (6th  edition).  It  was  also  Uirardo'n  view  ;  Polilicnl  Economy.  Chapter  III. 
On  the  whule  lubject,  ace  Professor  L.  Eiuaudi,  La  Rendita  Mineraria. 


RENT 


97 


I 


just  as  no  farm  in  its  entirety  is  on  the  margin.  Good  bits  are 
mixed  with  bits  less  good,  and  the  actual  payment  is  adjustetl 
by  a  rough-and-ready  process,  in  which  account  is  taken  of 
the  whole  of  the  natural  opportunities  as  well  as  of  all  the 
expense  and  risk  of  development.  Here,  as  in  every  part  of 
the  economic  field,  the  concrete  phenomena  show  only  an 
approximate  correspondence  with  the  sharply  stated  theorems 
that  serve  to  indicate  their  general  trend.  But  rent  proper 
shows  the  same  sort  of  development  on  mines  as  on  other 
natural  agents. 

§  3.  The  selling  value  of  a  natural  agent  —  be  it  agricultural 
land,  an  urban  site,  a  developed  mine  —  is  a  capitalization,  at 
the  current  rate  of  interest,  of  the  fixed  income  which  accrues 
to  its  owner.  It  varies,  therefc.-e,  inversely  to  the  rate  of 
interest.  Suppose  a  building  on  a  given  site  is  to  cost  $100,000, 
and  promises  a  net  income  or  commercial  rental  of  .$15,000 
a  year ;  then  if  the  rate  of  interest  be  5  per  cent,  the  investor 
will  readily  pay  $200,000  for  the  site.  On  his  total  outlay  of 
$300,000  he  will  get  $15,000,  or  5  per  cent.  If  the  rate  of  in- 
terest should  fall  to  2\  per  cent,  the  same  site  would  sell  for 
§400,000.  The  differential  advantage  of  the  site  would  remain 
as  before,  —  worth  $10,000  a  year ;  and  the  buyer  would  get 
2.T  per  cent  on  his  investment  by  purchasing  the  site  for 
$400,000.  On  the  $100,000  invested  in  the  building  he  would 
be  compelled  by  competition  to  accept  the  curren.:  interest 
rate  of  2]  per  cent,  and  the  total  rental  would  be  $12,500,  not 
$15,000.  The  decline  in  the  rate  of  interest  would  lessen 
the  return  on  the  building  (considered  alone),  but  woulil  double 
the  value  of  the  land.  The  lower  the  rate  of  interest  on  freely 
offered  capital,  the  higher  the  sum  v  uich  will  be  paid  for  any 
piece  of  property  which  yields  a  fixed  return. 

The  same  principle  applies  to  what  are  known  as  guaranteed 
securities,  —  the  shares  of  corporations,  such  as  railroad  cor- 


porations, whicli  have  hcon  ! 
railway  may  be  leased  (virtu 


i:-ed  on  fixeii  term 
ily  bought  up) 


Thur  one 
another,  with 


stipulation  to  pay  an  nimual  sum  equal  to  10  per  cent  on  its 


VOL.  II 


1 


98 


THE  DISTRIBUTION  OF  WEaLTH 


li    '■'■ 


shares.  If  the  current  rate  of  interest  is  5  per  cent,  each  share 
of  tiie  leased  railway  (par  value  being  assumeil  to  he  SlOO)  will 
sell  for  !J2(J0.  If  the  rate  of  interest  is  4  per  cent,  it  will  sell  for 
!;250;   if  21  per  cent,  for  SlUO. 

The  selling  pi-ice  of  land  is  affected,  of  course,  not  only  by 
the  process  of  capitalizinu;  its  present  rent,  but  by  the  expec- 
tations of  tlie  owners  and  of  the  investing  and  speculating 
I)ul)lic  coiiccrnin^";  liie  future.  In  a  growing  city,  an  advan- 
tageous site  will  command  a  price  more  tiiau  in  pro|)or- 
tion  to  its  present  rent  ;  because  it  is  expected  that  the 
rent  will  increase  still  further  as  the  years  go  on.  Conversely, 
a  doubt  as  to  the  future  of  the  site  will  cause  it  to  sell  at  a 
price  lower  than  its  present  rent  would  determine. 

§  1.  The  same  j'rolilems  of  jjulilic  policy  arise  for  urban 
land  as  for  agricultural  land.  There  is  here  an  unearned  in- 
cremenl.ilue  to  the  iiicreiise  aiul  thickening  of  population,  and 
ascribable  in  slight  degri'c,  if  at  all,  to  the  labor  or  care  of  the 
fortunate  jiossessdrs,  There  is  a  dilTerential  return  over  and 
above  what  is  necessary,  on  the  most  Iib(>ral  estinmte,  to  in- 
duce the  adaptation  of  the  site  to  its  most  elTcctive  uses.  Why 
should  not  the  community  appropriate  this  return? 

This  (piestion  is  ])res<'nted  more  sharply  in  the  ease  of  urban 
land  than  in  that  of  agricultural  land.  In  the  first  place,  it  is 
Usually  possible  to  ascertain  with  more  acc\iraey  just  what  is 
the  site  ri'Mt  and  the  site  value  of  urban  land.  We  have  .seen 
that  for  any  speeiijc  plot  of  agrii'ultural  land  which  has  long 
been  in  u^e,  liierc  Is  gre:it  dilliculty  in  determining  how  much 
of  its  product ivit.v  is  due  to  natural  advantages,  how  much  to 
man's  iietioii.  Tli.it  diiiieuity  is  mucii  less  for  urban  plots. 
It  is  nlmost  always  |)o>silile  to  state  at  le.ist  a  niiniimnn  sum 
\\lii<  li  rejire-'  iit^  th<'  dilb  ri'iitia!  adv.uilage  of  the  site  pure  and 
sniijile.  Seniithing  must  Im'  allowed,  it  is  true,  not  only  for 
pmr  inlrrrsi,  hut  j'or  the  risk  and  lai)or  involveil  in  building 

I-  .  I»,i-.  .1  ,,■!  Ill  A  II 

ani*  iii;: ii."^.;;  iniTii .  i»ui  iiioT  Tiir  iiiO;-!  iiiMrai  iUier^vriiicr  ti>r  riil 
such  items,  M  .mirplii-  riin.iins.  In  other  words,  it  is  possilile 
to  srt  aside  sotne  p.irt  of  the  gro-s  return  which  is  clearly  rent 
fy    the  sill'. 


RENT 


09 


In  the  second  place,  urban  rent  is  usually  concentrated  in 
fewer  hands,  and  gives  rise  to  wider  inequalities  of  wealtii  and 
income.  Urban  rent  may  or  mav  not  be  in  the  aKKregate 
greater  in  amount  than  aKricult  iral  rent.  In  countrios  like 
( 5<'rmany  and  France,  aRriciiltural  rent  is  probably  at  least  aa 
larfj;(>.  In  EuKland,  where  nuich  the  greater  part  of  the  popu- 
Intion  is  gathered  in  cities,  anv'  wluire  tlu;  free  importation  of 
foreign  produce  checks  the  growin  of  agricultural  rent,  urban 
rent  is  no  doubt  much  larger  in  the  aggregate.  It  proljaljly  is 
so  in  the  United  States  also;  for  the  al)undanc(!  of  fanning 
lanil  and  the  efliciencs  of  the  means  of  transportation  have 
limited  agiic.iltural  rent,  while  the  iucrease  of  city  population 
has  vastly  enhaiic(>(|  urb;in  rents  But,  in  any  case,  urljan 
laud  is  usually  in  fewer  hatids.  Though  the  agricultural  land  of 
(Jreat  Britain  is  concentrated  in  comparatively  few  hands,  and 
in  .\ustri;i.  also,  tliere  are  vast  estati's  in  the  possession  of  a 
.small  number  of  titled  projjrietors,  the  ownership  of  agricul- 
tunil  land  ia  France,  in  soutliern  and  wtvstern  (Jennany,  and  in 
the  United  States,  is  w.dely  ditTuse<l ;  a/d  its  economic  rent  is 
dispersed  among  millions  of  proprietors.  Urban  rent,  on  the 
other  hand,  flows  into  the  haml-^  of  a  much  smaller  number  of 
I)ersons,  and  among  these  ji  few  receive  great  .amounts.  Tho 
I)uk(>  of  Westminsti  r  and  the  Duke  of  F3edford  are  types  of 
British  p<'ers  who  h.ive  been  eiioiniou-<ly  enriched  i>y  the 
ownership  of  urban  sites  a;.d  the  falling-in  of  long-term  lea.ses. 
.lohn  .lacob  Astor,  in  the  e.arly  yi'iirs  (  f  llie  nineteenth  century, 
became  the  owner  of  sites  in  New  ^'ork  whose  valui',  in  the 
course  of  the  century,  liecnme  .'limost  f;ilHiloiis  ;  his  deseen<lan(s 
not  only  enjoy  this  \ield,  Imt  have  ('reatly  enlargid  the  family 
holdings,  until  their  income  has  exceede.l  lli;it  of  dukes  and 
princes,  'The  s;ime  tiiini-;  ha*  proii.iliiv  Icippeneij  in  everv 
.\ineiiciin  city.  (  eilnin  "old  families"  nsuidiy  founded  l>y 
an  anci'slor  of  the  snccessfn!  Iiusjness-man  type  liavi-  becoMie 
ric!>  frc>!!>  '!■'.<  irmw!!!  (<!  Ih.e  C!>!!<n!!!!<.!!  v  \i  i-i  !rn:'  i\'.''.i  ifwi  = 
cions  holding,  of  llie  l.ind  by  snccessive  generatiotH  of  the  same 
family  in  much  less  common  in  the  I  luted  Stati>s  than  in  (Ire.it 


•III 


I.., 


P;/ 


100  THE  DISTRIBUTION  OF  WEALTH 

Britain.  The  ease  of  transferring  the  title  to  land,  and  the 
habits  of  speculation,  have  caused  a  dispersion  of  urban  rent 
in  our  own  country,  and  a  parcelinR  of  the  increment  among 
a  succession  of  purchasers.  None  the  less,  in  the  United  States 
as  in  other  countries,  url)an  rent  has  been  a  cause  of  conspicuous 
inequalities  in  wealth. 

Hence  the  proposal  to  appropriate  for  the  public  the  whole 
or  a  part  of  rent  is  urged  more  insistently  for  urban  sites  than 
for  agricultural  land.     It  seems  to  me  impossible  to  deny  that 
if  a  reservation  of  rent  for  the  conununity  had  been  made  from 
the  start,  with  due  care  and  discrimination,  the  conununity 
would  have  been  better  off.     The  effective  utilization  of  the  land 
would  not  have  been  retarded,  while  a  lessening  of  the  general 
tax  burdens  and  a  ohe.-k  to  in(<<iuality  -  ould  have  been  brought 
about.     Careful  and  discriminating  u.  nagenn'nt  would,  indeed, 
hav(>  been  essential.     The  (,uin(iuemiial  or  decennial  carving 
out  of  .Tonomic  rent  would  have  raised  delicate  (luestions  as 
to  how  nuich  allowance  should  be  made  for  the  return  neces- 
sary to  enlist  shrewdness  and  enteri)rise.     A  rough-and-ready 
adnunistration  ol'  such  a  .system,  still  mor.>  a  grasping  one  (and 
l)ublic  adtniinstration  is  too  apt  to  show  one  or  both  of  th(>se 
characteristics),  might  bring  more  harm  to  the  community  in 
checking  the  utilization  of  land  than  good  in  capturing  the  un- 
earned increment. 

The  leasing  of  land  on  long  terms  by  the  state,  whi.-h  was 
suggested  among  the  i)()ssibiliti(>s  as  to  agricultural  land,  W(.uld 
have  be<-ii  no  le^s  possible  as  to  urban  land.  A  lease  for  ninety- 
nine  years  is  as  good  as  a  fe<'.  so  far  as  thi'  promotion  of  invest- 
ment goes.  No  .louht,  if  land  were  hdd  on  siidi  t-rins  from 
the  state,  tiie  lioldcr  during  a  large  part  of  the  ninety-nine 
years  might  seci-c  a  haiids..me  slice  ..f  the  accruing  site  value. 
Hut  at  h'ast  when  the  end  came,  the  conununity  would  reai.  its 
gain,  Much  short.-r  l.as.'s  for  fifty  or  .vm  twenty-live 
,..,„_..  ,.,„.!(!  ,.o!.....iviil>lv  be  ilrawu,  with  provisions  for  coin- 
jHiisation  to  the  imoroving  t.-nant  such  as  would  allow  siiHi- 
ciently  free  play  to  the  investment  of  capital.     Lund  leases  for 


RENT 


101 


such  terms  are  not  uncommon  in  the  city  cf  New  York  (e.g.  on 
the  Astor  properties)  and  are  not  found  incompatible  with  the 
most  intensive  utiHzatioii  of  the  sites. 

In  the  case  of  mines,  it  is  difficult  to  see  how  any  other 
method  than  that  of  long  leases  could  secure  the  two  desired 
ends,  —  the  effective  utilization  of  the  resources  and  the  con- 
scrvance  of  the  public's  fundamental  e(iuity.  The  uncertain- 
ties of  mining  are  such  that  any  recurrent  carving  out  of  eco- 
nomic rent  is  quite  impracticable.  The  only  feasible  policy 
would  be  that  of  allowing  private  enterprise  to  take  its  risks 
and  reap  its  rewards  over  a  stated  period.  Xo  doubt  the 
possessor  or  tenant  during  his  term  would  be  tempted  to  work 
the  mine  to  the  utmost  and  perhaps  exhaust  it  ;  a  difficulty 
possibly  to  be  met  by  recpiiring  the  payment  of  a  progressive; 
royalty  as  a  large  output  was  reached.  IIen>,  as  elsewhere, 
occasional  great  gains  to  lucky  or  shrewd  investors  must  l)e  ac- 
cepted with  equanimity  ;  a  policy  too  grasping  (tverreaches  itself. 
All  this,  however,  is  little  more  than  idle  speculation,  at  least 
so  far  as  the  past  is  conc<'rned.  No  community  has  reserved 
to  it)^'  by  lease  or  by  i>eriodic  levy,  the  right  to  the  imearned 
ineremtiit.  Historically,  it  could  not  be  otherwise.  Private 
property  in  land  was  an  indispensable  iiistrunu  nt  for  th<' 
advance  of  civilization.  Surveying  the  history  of  European 
imlustry  aiul  tiie  growth  of  Kuropran  cili(>s,  we  cannot  see 
how  advancing  arts,  free  enterprise,  accumulating  capital, 
could  have  been  secin-ed  without  the  instrument,  comparatively 
cri'de  as  it  may  seem,  of  un(iuali(i<'d  title  to  land.  The  new 
countries  of  modern  times  the  I'nited  States,  Canadii. 
Australia,  .\rgentina.  and  tlie  like  -  might  (•oneeival)ly  have 
starte<l  with  a  mure  I'lir-sigliteil  mid  more  complex  system  of 
land  tenure,  in  fai't,  they  liave  not  done  so.  'I'lie  force  of 
tradition  and  hal>it,llie  rapaeiou- desire  of  the  pioneers  for  Itie 
unrestricted  fee,  ignorance  and  indilTerenee  as  to  tin-  under- 
lying economic  principles,  have  led  them  to  follow  tlie  ways 
of  old  countries,  and  to  m  pi  the  establislied  prnieipies  ol  the 
unqualifieil  law  of  real  property. 


102 


THE  DISTRIBUTION  OF  WEALTH 


ih 


I' 


Hence  the  problem  of  vested  rights  in  urban  land  stands  aa 
stubbornly  in  the  way  of  the  ardent  reformer  as  it  does  for 
agricultural  land.  The  purchase  and  transfer  of  urban  sites 
has  gone  on  from  time  iraraemorial  in  the  same  way  as  that  of 
farming  lan<l.  To  the  present  owners,  the  capitalized  value 
represents  an  investment  or  an  inheritance,  precisely  as  docs 
the  present  value  of  anything  which  is  capital  in  the  strict 
sense.  Here,  again,  unless  the  whole  institution  of  private 
property  be  remade  or  abolislied,  the  existing  rights  to  land, 
as  tliey  have  been  allowed  to  develop  through  the  centuries, 
must  be  respected. 

§  5.  The  question  is  different  as  regards  the  rise  in  rent 
that  is  still  to  come.  There  is  no  vested  right  in  the  indefinite 
future.  The  proposal  that  the  future  increment  shall  be  re- 
served for  the  community  was  made  fifty  years  ago,  chiefly 
with  reference  to  agricultural  land,  l)y  John  Stuart  Mill  and 
other  reformers,  i  nt  the  advantages  of  unrestricted  property 
in  agricultural  !■  iid,  especially  where  wide  distribution  of 
ownership  prevails,  and  the  difficulties  in  the  way  of  carving 
out  economic  rent  with  any  accuracy,  —  these  considc^rations 
have  led  to  the  rejection  of  Mill's  proposal,  as  to  agricultural 
land,  by  most  economists  of  the  later  generation.  On  tho 
otluT  hand,  with  the  rapid  growth  of  modern  cities  and  tho 
unmistakable  swelling  of  site  ren's,  a  reservation  of  the  com- 
numity's  rights  with  resjx'ct  to  urban  land  has  met  with  steadi'y 
increasing  recognition.  The  form  in  which  this  right  is  most 
likely  to  lir  assert (>(1  is  that  of  a  special  tax  on  the  newly  accru- 
ing increase  in  site  values.  In  strict  theory,  the  wliole  of  this 
increase  miglit  be  taken  through  taxation.  No  doubt,  in  esti- 
mating the  increase,  allcwunce  wouM  have  to  be  iimde  for  all 
tiie  factors  wliich  have  been  discussed  in  the  preceding  eh;ip- 
ter  ;  and  the  process  of  securing  the  whole  of  the  -irict  surplus, 
and  no  more,  —  leaving  the  owner  enough,  and  only  enough, 
to  induce  the  effective  utiliz.'ition  of  the  site,  -would  be  a 
very  delii-ate  one.  Hut  it  is  not  likely,  so  long  as  tlic  institu- 
tion of  private  pro|)erty  remains,  that  there  will  l)e  so  drastic 


RENT 


103 


an  application  of  the  principle.  No  proposal  that  has  now  a 
prospect  for  adoption  contemplates  taking  more  than  a  slice 
of  the  future  increment.  In  (iermany,  wliere  so  many  move- 
ments toward  social  reform  are  being  currietl  on  in  deliberate 
and  well-i)lanned  fashion,  tiie  recent  (iOll)  imperial  legislation 
for  taxing  gains  in  site  value  did  no  more  than  apiJiopriate 
(at  the  highest  rate)  thirty  per  cent  of  the  increase.'  The 
hotly  debated  British  tax  of  I'JO'J  took  twenty  j)er  cent.  It 
may  be  that  this  is  only  a  beginning;  and  those  who  oppose  it 
will  maintain  that  eventually  everything  will  be  taken,  and 
that  in  the  end  existing  values  as  well  as  newly  accruing  gains 
will  be  appropriated.  But  such  objections  are  urged  against 
every  profxisal  for  social  reform,  and,  if  allowed,  would  pn-vent 
any  disturbance  whatever  of  the  stains  quo.  The  day  is  gone 
by  when  they  are  felt  to  be  insuperable.  The  ilogma  of  an 
unrestricted  right  of  property,  ami  the  belief  in  the  expediency 
of  the  exercise  of  that  right  without  a  jot  or  tittle  of  abatement, 
ha'  >'  been  shaken  beyond  rei)air.  Tlw  rights  of  |)roperty  must 
approve  themselves  on  examination  in  each  ])articular  ease, 
and  mu.-t  submit  to  modilication  where  a  i)alance  of  gain  for 
the  jiublic  can  be  reasonably  expected. 

The  growing  demand  for  taxes  on  unearned  increments,  and 
the  actual  enactment  of  legislation  in  (lermany  and  Hngland, 
make  the  tinxhin  operandi  important :  how  proceed  ?  The  prol)- 
lem  is  by  no  means  a  simple  one.  The  accruing  increase  of 
rent  is  the  thing  which,  in  the  last  aiuilysis,  it  is  desin>d  to 
divert  to  public  use.  But  what  emerges  most  openly  is  capi- 
talized value.  The  easiest  way  of  ai'apting  the  n\achinery  of 
taxation  to  the  phenomenon  familiar  to  all  Iheworlil  i^  to  tax 
in  proportion  to  thi'  higher  selling  j)rice  of  land.  To  tax  the 
increase  in  selling  i)ric(>  may  iiid<>ed  •^ei-m  to  accomplish  the 
same  (>nd  as  to  fax  th(>  growinir  rent  ;  since  the  i)rice  is  but  a 
capitalizntion  of  the  rent.  Yet  there  are  tliiliculties  and  com- 
piiration?. 


'  Iliif  tlin  ninxiiiuiiii  ('ID  iicrfrnf)  ■n-r 

lllilll    lio.li.'H    IfitifJ)    III'"    !llln«"il    t"     I'M 

thcri  liy  bring  the  virttml  niaxiiiiuiii  to  l.'i  |iir  tcut. 


tn  limit  till-  iiiipcriMl  t:ix 


iiilv. 


Th. 


ill'l'lf'Ilrll 


I  1  111  tl'  ■  ifu|Mriiil  tax.  iiii'l 


104 


THE  DISTRILUTION  OF  WEALTH 


I  I, 


In  the  first  place,  regard  must  be  had  to  all  the  factors  that 
bear  on  selling  price.  A  fall  in  the  rate  of  interest,  for  example, 
operates  per  se  to  raise  the  price  of  sites;  and  this  has  been 
among  the  causes  of  the  advance  in  the  value  of  American 
urban  sites  during  the  last  thirty  or  fifty  years.  Again,  a 
change  in  the  general  range  of  prices  will  affect  the  prices  of 
land  also.  All  projects  for  measuring  the  rise  of  rents  assume 
stability  in  the  monetary  system;  care  must  be  taken  that 
this  assumption  is  justified.  Present  selling  prices  are  also 
affected  by  the  expectation  that  the  existing  rent  will  rise  or 
fall  in  the  future,  as  cities  grow  or  decline  or  as  any  given  dis- 
trict rises  or  falls  in  favor.  For  various  reasons,  changes  in 
capital  value  are  by  no  means  automatic  indications  of  the 
changes  in  actually  accruing  rent. 

More  important  are  difficulties  in  the  mode  of  levying  taxes 
on  an  accretion  of  capital  value.  If  collected  from  the  buyer, 
they  tend  to  defeat  themselves.  If  a  buyer  of  land  knows  he 
must  pay  a  tax  of,  say,  50  per  cent  on  the  increase  which  has 
taken  place  in  the  value  of  a  site  since  the  last  purchase,  he 
can  offer  so  much  less  for  it.  The  very  process  of  exacting  a 
tax  on  increasing  value  tends  then  to  obliterate  the  overt  evi- 
dence of  increasing  value.  Usually,  however,  the  proposal  is 
for  the  collection  of  the  tax  from  the  seller.  This  being  the 
case,  the  buyer  pays  the  full  value  of  the  site,  and  the  seller  is 
nuilcted  by  the  taxgatherer  for  part  (conceivably  the  whole) 
of  tlu>  increase  in  value.  Rut  this  process  tends  to  prevent  the 
seller  fnnu  parting  with  the  site  ;  he  will  hold  it.  and  secure  the 
site  r('i\t  for  himself,  rather  than  sell  sui)j('ct  to  a  tax.  There 
will  be  a  certainty  of  securing  the  accretion  only  if  land  is 
periodically  valued,  or  if  its  transfer  by  inheritance  is  made  the 
occasion  of  levying  the  tax,  —  devices  which  are  not  imprac- 
ticabl(>,  but  miss  that  familiar  and  conclusive  evidence  of  in- 
cre;isinu;  value  which  is  supplied  by  a  sale.  And  in  any  cas(>. 
(hi-  rittiition  ui  iiic  i.ui.i  in  tlic  same  linuiis,  uniit t  the  drtcrrrnt 
effect  of  a  tax  on  seller's  iufreineiit,  operates  to  keep  the  laml 
from  its  fuUest  utilization.     Tlie  buyer  who  would  offer  a  high 


RENT 


105 


price  for  the  site  is  the  person  who  knows  how  to  put  it  to  most 
effective  use ;  a  tax  on  what  the  seller  woukl  receive  from  iiiin 
tends  to  keep  it  in  the  hands  of  the  inert  and  unprogressive. 

There  is  still  another  objection  to  taxes  on  seller's  increment. 
They  are,  so  to  speak,  a  sale  by  the  public  of  its  birthright. 
The  buyer  pays  the  full  capitalized  value,  and  pays  it  (via  the 
seller)  to  the  taxgathercr.  In  effect,  he  buys  a  rent  charge  in 
perpetuity.  The  state  parts  with  its  principal ;  in  considera- 
tion of  a  sum  paid  in  at  once,  it  parts  forever  with  its  right  to 
appropriate  the  accrued  increase  of  site  rent.  This  is  un- 
thrifty, in  the  same  sense  in  which  it  would  be  unthrifty  for 
an  individual  to  spend  his  principal  rather  tlian  his  income. 
And  obviously  the  process  contributes  to  the  perpetuation  of 
the  leisure  class.  The  buyer  and  his  descendants  l)uy  the  right 
to  collect  for  the  unlimited  future  the  site  rent  whose  capital 
value  has  been  paid  over  to  the  public. 

Hence  it  would  seem  to  be,  in  principle,  much  preferable  to 
levy  all  such  taxes,  whether  their  intent  l)e  to  capture  a  large 
slice  of  increasing  rent  or  a  small  one,  with  reference  to  the 
economic  rent  itself.  This  is  doubtless  not  in  accord  with 
existing  practises  in  the  purcliast>  and  sale  of  real  property ; 
and  in  the  United  States  it  is  also  quite  out  of  accord  with  the 
existing  custom  of  levying  all  local  taxes  on  the  capital  v. due 
of  property,  not  on  the  income.  Hence  it  is  a  method  difficult 
of  adoption,  —  particularly  so,  because  tax  changes  of  every 
sort  encounter  more  vehement  opjiosition  than  any  other 
kind  of  economic  readjustment.  Yet  the  periodic  ass(>ssm(>nt 
r'  site  rent  is  in  itself  not  more  ilifficult  than  the  periodic 
assessment  of  site  value.  The  site  rent,  or  whatever  part  of  it 
is  to  be  secured,  could  be  sulijectetl  to  an  annual  charge,  with 
revaluation  every  five  years  or  every  d(  cade.  Selling  value 
W'-ild  adjust  its(>lf  to  tlie  diminished  share  left  the  owner, 
modified  (as  now)  l)y  changes  in  interest  rates,  l)ut  not  atfeeted 
bv  prosnecfs  of  rise  or  f;i!!  iti  the  rent.  ih.e  cliief  (liflieiijlv 
inherent  in  viiis  metliod  would  api)ear  for  vacant  land,  —  url>aii 
aites  whos<>  potential  rents  .ire  high,  but  which  for  the  time 


106 


THE  DISTRIBUTION   OF  WEALTH 


m 


>v 


being  are  withheld  from  use  by  their  owners.  They  may 
have  high  capital  value,  but  in  their  existing  undeveloped  state 
no  rent  at  all  has  aecrued.  To  leave  them  untaxed  would  con- 
tribute to  keeping  them  undeveloped.  Our  existing  American 
system  of  taxing  vacant  land  on  its  capital  value  does  operate 
pro  tanto  to  hasten  its  utilization.  Yet  to  tax  them  in  full  on 
an  estimated  potential  rental  (or  increase  of  potential  rental) 
would  be  a  troublesome  matter,  in  view  of  the  fact  that  all 
such  land  cannot  possibly  be  brought  into  use  at  once,  and  all 
of  it  cannot  be  made  to  yield  a  rent  at  once.  Some  sort  of 
compromise  would  seem  to  V)e  called  for,  —  a  partial  tax, 
perhaps  at  half  rate,  on  such  potential  rents :  enough  to  bring 
pressure  on  the  owner  to  utilize  the  site. 

Like  all  movements  for  reform  which  involve  the  application 
of  a  new  principle,  this  one  will  have  to  proceed  by  slow  steps, 
and  with  as  little  departure  as  possible  from  existing  trarlitions 
ai  1  practises.  I  know  not  whether  it  will  ever  prove  possible, 
under  the  present  organization  of  society,  to  attain  a  really 
'liscriniinating  mcthoil  of  dealing  with  the  problem.  Though  tho 
principles  which  underlie  it  are  axuong  the  most  settled  in  tho 
tli(>ory  of  economics,  they  bring  a  shock  to  tiie  common  notions 
about  the  sanctity  and  stal)ility  of  real  property;  and  their 
application  involves  a  disturbance  of  the  common  ways  of 
dealing  with  real  property.  The  movement  for  taxing  tho  un- 
earned increment  on  urltan  sites  is  certain  to  grow  in  strength, 
and  to  bring  results  in  legislation;  but  the  precise  mode  in 
which  it  will  proceed  will  be  alTected  by  compromises  and  half 
me!(sun>s.' 

'  I.ct  tin'  render  rdniiare.  nn  tlii^  topir  of  tlie  tnxiitiiin  nf  (viti'«.  whiit  ii!  R.lid 
liclow,  BiKik  VIII,  C'liaiitrr  OS.  loiKoruiiig  tuxen  (in  land  and  reul  iirinurty. 


V 


CHAPTER  45 


Monopoly  Gains 


§  1.  The  differences  between  natural  agents,  hrin<fing  about 
the  phenomenon  of  rent,  constitute  one  great  cause  of  variations 
in  the  yield  from  labor  and  capital.  Rent  has  often  been  said 
to  be  due  to  monopoly.  Rut  this  is  not  an  accurate  statement. 
The  characteristic  of  monopoly  is  single-ham  led  control  over 
the  total  supply.  Rent  is  not  due  to  control  over  the  supply 
by  any  landholder  or  combination  of  landhold(>rs ;  it  is  due  to 
tl.e  scarcity  of  the  better  sources  of  supply.  But  monopoly  is 
similar  to  land  scarcity  in  that  it  causes  unusual  returns  to  some 
enterprises,  and  so  contributes  to  inequalities  in  the  distribu- 
tion of  wealth  and  income.  Of  its  regulation  we  shall  say 
little  here.  The  present  chapter  is  concerned  only  with  its 
relation  to  other  gains  from  the  ownership  of  ca[)ital  and  its 
place  in  the  theory  of  distribution.' 

Sundry  classifications  of  ironopoly  have  been  proposed. 
The  simplest,  and  that  which  will  sufRcc  for  sui-h  a  general 
survey  as  is  imdertaken  in  this  book,  is  into  absolute  monopolies 
on  the  one  hand,  and  industrial  monopolies  on  the  other. 
A})solute  monopolies  are  those  in  which,  by  law  or  by  owner- 
ship of  all  the  sources  of  supjily,  the  holder's  control  is  com- 
plete. Industrial  monopolies  are  those  in  which  the  control 
over  th"  supply,  while  not  complet",  is  yet  effective  cnougti  to 
bring  a  state  of  things  dilTerent  from  that  of  competition;  in 
which,  even  though  then'  be  no  legal  or  natural  restriction,  the 
nature  of  the  operations  is  such  that  competition  is  wholly 
removed,  or  operative  only  to  a  limited  ch'gree. 

Where  there  is  an  al)solute  monopoly,  the  situation  is  com- 


Tompiiri'thp  iliniitcrs  ou  Railroiids,  Combiiiutiniia,  Public  Owuership  ;  Hmik 
VII,  ChuptiTs  00  (!.'<. 

107 


108 


THE  DISTRIBUTION  OF  WEALTH 


K'l; 


paratively  simple.  The  general  principles  involved  have  been 
sufficiently  stated  in  the  chapter  on  Monopoly  Value.>  The 
monopolist,  if  vigilant  and  shrewd,  will  fix  that  price  at  which 
his  net  profit  is  greatest. 

Copyrights  and  patents  supply  the  simplest  cases  of  absolute 
monopoly  by  law.  During  the  term  of  the  exclusive  privilege, 
the  holder  is  affected  by  competition  only  in  so  far  as  substi- 
tutes are  available,  —  often  a  considerable  limitation,  yet  by  no 
means  such  as  to  prevent  very  great  gains  from  some  patents 
and  copyrights.  Among  modern  patents,  those  of  Bessemer 
for  making  steel,  of  Bell  for  the  telephone,  of  McKay  for  the 
sewing  machine  used  in  shoe  manufacturing,  the  Northrop 
automatic  loom,  the  Mergenthaler  linotype  machine,  the  Edison 
light,  have  been  conspicuous  for  success.  The  justification  for 
the  gains  from  such  patents  is  that  the  prospect  of  securing 
them  has  been  a  spur  to  invention,  and  that,  though  prices  may 
be  above  the  competitive  level  during  the  term  of  the  patent, 
the  public  gains  in  the  end.  Patents  are  granted  for  a  limited 
perioil,  usually  for  about  fifteen  years  (this  is  the  term  in 
France,  German}%  and  Austria ;  in  Great  Britain  it  is  fourteen 
years,  in  the  United  States  seventeen).  When  they  expire, 
the  unrestrictetl  use  of  the  device  is  expected  to  bring  to  the 
community  cheaper  or  botter  goods  than  it  would  have  had 
otherwise. 

The  a.'^sumption  underlying  patent  laws,  namely,  that  the 
improvements  would  not  have  been  made  but  for  the  monopoly 
privilege,  in  the  main  is  justified.  Though  some  persons  are  born 
with  an  itistinct  for  contrivance,  and  will  l)e  impelled  to  inven- 
tion as  irresistibly  as  others  will  be  to  literature  or  science, 
the  pr<)s])c('t  of  a  reward  is  in  most  eases  an  indispjMisable 
.stimulus.  This  is  the  more  the  case  with  patents,  because 
they  almost  always  involvi'  considerable  risk,  both  for  the  in- 
ventor and  for  those  who  supply  capital  for  working  the  inven- 
tion. Of  the  p.-ittiits  attuully  taken  out,  — thuUsund?;  of  tiiein 
annually  in  a  country  like  the  Tnited  States, — the  immense 
'  .«(•(•  r.Mok  II,  Cliiiplc  r  l.'j. 


i 


MONOPOLY  GAINS 


109 


majority  come  to  nothing.  Though  most  of  the  failures  were  cer- 
tain from  the  start  (all  sorts  of  absurd  or  insignificant  devices 
are  patented),  the  future  of  many,  involving  much  thought 
and  labor,  is  uncertain.  They  may  prove  valuable,  and  may 
prove  worthless.  After  a  patent  has  been  secured  and  launched, 
there  must  often  be  expensive  experimenting  with  further 
devices  and  improvements.  For  at  least  two  of  the  inventions 
just  mentioned,  —  the  Northrop  loom  and  the  Mergenthaler 
printing  machine,  —  hundreds  of  thousands  of  dollars  were 
spent  in  preparatory  and  experimental  operations.  In  other 
words,  risks  must  be  run,  and  there  inust  be  prizes  to  offset 
the  failures.  If  every  process  that  had  been  worked  out  with 
much  labor  and  largo  expenditure  were,  when  perfected,  at 
once  open  for  use  to  every  comer,  the  original  inventors  and 
investors  would  have  much  less  prospect  of  reaping  a  sufficient 
reward.  Here,  as  elsewhere,  occasional  windfalls,  which  may 
seem  out  of  proportion  to  the  desert  of  the  particular  fortune- 
winner,  must  be  accepted  as  part  of  the  encouragement  of 
vigor  and  enterprise. 

Much  the  same  can  be  said  of  copyrights.  It  is  true  that 
in  this  case,  more  than  in  that  of  mechanical  inventions,  the 
inborn  bent  of  some  individuals  produces  its  effect,  irrespective 
of  rewards.  But  literature  as  well  as  art  shows  not  only  all 
degrees  of  merit,  but  all  shades  of  motive.  In  the  making  of 
most  modern  books,  the  stimulus  of  individual  gain  plays  no 
small  part.  Legal  protection  for  the  book  writer  is  peculiarly 
neces.sary  ;  for  a  book  can  be  reprinted  verbatim  at  once,  whereas 
a  new  mechanical  device  may  be  often  shielded  from  c()mi)('ti- 
tion  for  some  time  even  without  a  patent.  Given  the  principle 
of  reward  in  proportion  to  useful  activity,  then  copyright  is  a 
natural  and  consistent  application  of  it ;  and  those  who,  in  the 
absence  of  legal  protection  to  authors,  print  their  hooks  without 
making  payment,  are  not  inaptly  termed  pirates. 

Absolute  monopolies  re-ting  not  ^n  legal  r<'-frii'tii>!i,  but  on 
control  of  natural  resources,  are  rare.  The  diamond  mines  of 
South  Africa,  to  which  reference  has  already  been  made,  afford 


no 


THE  DISTRIBUTION  OF  WEALTH 


1 


« 


U    ■ 

I 

f 


I   ! 


an  instance.'  The  owners  of  the  nitrate  beds  in  Chile  have 
affected  a  combination,  and  the  owners  of  the  world's  borax 
supplies  have  consolidated  into  a  single  corporation.  In  both 
of  the  last-mentioned  cases,  the  natural  resources  are  supposed 
to  be  limited ;  but  there  is  always  in  the  background  the  pos- 
sibility of  the  discovery  of  new  supplies,  or  of  the  utilization  of 
others  that  are  known  but  are  of  poor  quality.  Hence  the 
monopoly  is  not  unchecked  in  its  control  over  supply.  The 
usual  situation  is  that  so-called  monopolists  of  this  sort  are  in 
the  possession,  not  of  the  sole  sources  of  production,  but  of  the 
best,  d  hence  that  their  gains  are  more  in  the  nature  of 
economic  rent  than  monopoly  gains  in  the  narrower  sense. 

§  2.  Much  more  important  in  the  modern  world  are  indus- 
trial monopolies.  These  also  are  rarely  quite  unfettered  ;  but 
the  limitatiors  on  their  prices  and  profits  coine  not  so  much 
from  the  existence  of  poorer  sources  of  supply  as  from  public 
regulation  and  the  possibility  of  competition.  Broadly  speak- 
ing, they  are  of  two  sorts,  —  "public  service"  industries  and 
the  familiar  "trusts." 

"Public  service  industries"  is  a  convenient  phrase  to  desig- 
nate water  supply,  gas  supply,  railways  and  street  railways, 
the  telephone  and  telegraph,  electric  lighting,  and  the  like. 
Tho"  ^ro  oper.".tions  which  affect  great  numbers  of  people,  which 
usually  call  for  some  special  grant  of  pri;ilcge,  .buch  as  the 
right  of  eminent  domain  or  the  use  of  the  public  highways,  and 
which  are  best  carried  on  under  single  management.  The  last- 
named  characteristic  is  the  important  one  for  our  present 
purpose.  The  advantages  of  single  management  are  so  great  that, 
even  though  there  be  an  initial  period  of  competition  between 
two  or  more  establishments,  consolidation  is  certain  to  ensue. 
The  community  may  as  well  accept  once  for  all  the  fact  of 
monopoly,  and  regulate  its  affairs  accordingly. 

Increasing  returns  in  the  strict  economic  sense  are  a  usual 
ch,'vrartf>ristic  of  ihv^r  indu'stric^.  A  niiiglc  great  plant  can  <io 
the  work  more  cheaply  as  it  gets  larger  and  larger.     It  is  a 

>  Book  II,  Chapter  15,  {  2. 


MONOPOLY        x'lS 


111 


wasteful  process  to  duplicate  a  railway  line,  the  mains  of  a  water 
or  gas  system,  the  wires  of  a  telephone  or  telegraph  system. 
In  the  case  of  telephones  and  telegraphs  there  is  the  further 
circumstance  that  all  customers  are  better  served  if  all  are 
connected  with  a  single  system.  Sometimes,  it  is  true,  when 
the  stage  of  very  intensive  use  is  reached,  the  duplication  of  a 
plant  may  hecome  necessary ;  there  may  l)e  neeil  of  a  second 
set  of  main  pipes,  of  duplicated  railway  tracks  or  an  additional 
line.  Even  then,  there  are  almost  always  appreciable  econ- 
omies in  managing  the  several  p.ants  as  fMie ;  and,  wheilicr 
or  no  there  l)e  such  economies,  it  is  certain  that  so  small  a 
number  of  competitors  will  form  a  coml)ination.  Chiefly  l)e- 
cause  of  increasing  returns  in  pnxluction,  ami  in  any  case 
because  of  the  small  number  of  possible  competitors,  the  emer- 
gence of  single  control  is  inevitable. 

These  intlustries  l)ring  increasing  returns  in  another  sense  : 
not  merely  increasing  efficiency  of  labor,  but  increasing  profits. 
The  growing  numbers  of  the  community  will  commonly  make 
the  single  plant,  or  comljination  of  plants,  more  profitable  as 
the  years  go  on.  A  traditional  price  for  the  product  or  services 
is  fixed  at  the  outset,  which  then  is  usually  a  "fair"  price,  — 
that  is,  a  price  such  as  yields  no  unusuni  gains.  As  time  goes 
on  and  population  increases,  expenses  per  unit  decline ;  and 
improvements  in  the  arts  often  cause  the  expenses  to  decline 
still  more.  But  the  tradititmal  price  remains,  competition  is 
absent  or  only  intermittent,  and  the  gains  from  the  under- 
taking swell.  In  this  gradual  growth  of  gains,  due  (;hiefly  to 
the  advance  of  the  community  at  large,  there  is  a  strong  analogy 
to  the  rising  rent  of  land,  and  especially  of  urban  sites. 

Some  inventions  of  modern  times  have  served  greatly  to 
increase  the  gains  in  stu'li  industries.  The  ajiplication  of  elec- 
tricity to  traction  has  enormously  increased  the  efficiency  of 
labor  in  street  railways.  The  improvements  in  gas  manu- 
facture, especially  from  tiie  use  of  naphtlia  in  making  water  ga~. 
have  been  hardly  less  importniit.  The  growth  of  cities  won!  1 
in    ^i.y    cat  ^    have    made    these    industries    more    lucrative. 


Hiidi 


112 


THE   DISTRimTION   OF   \\x..iLTH 


y     ': 


Cheapened  as  their  operations  have  been  by  great  advances 
in  the  arts,  they  liavo  heeonie  sometimes  fabulously  profitable. 
The  essence  of  tlie  gain  has  lain  in  the  "franchise,"  —  that  is, 
the  exclusive  right  to  carry  on  the  industries  in  a  give-i  city  or 
in  tlie  most  advantageous  streets  of  a  city.  It  is  this  founda- 
tion of  monopoly  which  has  enal)led  the  holders  to  !  >*::■■"  U>r 
themselves  —  not  necessarily  in  toto,  but  in  large  p;;  t  — th" 
economics  in  operation  due  to  growing  population  ai.  '  '  iin- 
proveujcnts  in  I  he  arts. 

§  3.  More  troublesome  problems  of  economic  theory,  and 
no  less  difTicult  problems  of  pul)lic  policy,  are  presented  by  the 
so-called  "trusts";  that  is,  the  great  horizontal  combinations, 
under  single  management,  of  a  seri(>s  of  separate  establishments. 
The  differeii'f  between  the  u'onopoly  industries  consid?rcd  in 
the  last  secJionaiid  tlie  trusts  lies  in  the  fact  that  here  there 
are  usually  a  nuiui)er  of  physically  separate  plants.  A  street 
railway,  a  gas  system,  a  leli'|)lione  and  telegrai)h  net,  a  railway 
system,  —  each  is  a  physical  unit.  But  when  a  dozei  sugar 
relineries,  or  chemical  works,  or  lead  factories,  are  united  in  a 
trust,  i!h'  separ.ite  plants  remain  separate,  though  now  managi'd 
as  one. 

It  must  be  confe!<^;ed  fr.uikly  that  we  do  not  know,  in  the 
I)res(  nt  state  of  economic  inquiry,  to  what  extent  elTective 
niiiiio|)oly  is  likrly  to  develo|)  in  such  industries.  If  there  were 
a  geiicril  tcndfiicy  to  incrcising  returns  from  the  mere  fact  of 
eonccn' ration  in  ownership  und  management,  we  should  expect 
mo!iopoly  to  develop  wiliioiit  fail.'  Yet  even  in  the  absence 
of  siicli  a  tendency  eoiitiniiously  in  o|)erMtion,  s(»me  degree  of 
monopoly  control  may  appear.  'I'he  great  combination  or 
trust  m.'iy  keep  out  riv.ils  by  ciitiliroat  com|)etition,  by 
sheer  weijilil  and  pow<T.  On  the  other  'lanil,  large  gains 
ilo  teni|»t  interlopers,  Mnd  the  constantly  swelling  volume  of 
accumulations  in  se;ircli  of  investment  causes  every  chance  of 
seciiritiir  inriT'.'  n-tiinss  in  be  ho!'-/!'!  .ust      'I'hi-re  j-i  thiC  crucial 

M  ...,.eir.  11..,.),  If.  ClDiiiIrr  II,  nil.  S..  tilm.  U»«k  VII,  Chm.l.T  M,  on 
Tni»'         I  '  'iiiiiliinnlioiix. 


MONOP-^LY  GAINS 


113 


question  of  managonu'ut,  too;  the  possibility  of  nepotism  and 
ossification  in  the  great  coniI)inati()n,  when  once  the  foiimlers 
(usually  men  of  exceptional  ability)  have  left  the  field.  New- 
blood  may  appear  in  new  enterprises,  and  an  apparently  secure 
position  of  dominance  may  be  lost  to  a  later  generation  of  busi- 
ness leaders.  To  repeat,  we  are  much  in  the  dark  as  to  tlie 
future  of  this  remarkal)le  economic  movement,  and  cannot  be 
certain  how  far  the  range  of  monopolistic  control  and  monopoly 
profit  will  extend. 

This  much,  however,  is  cle;ir :  that  competition  acts  more 
slowly  in  many  directions  than  was  believed  by  the  <'C()nomists 
of  a  generation  ago.  If  not  complete  monopoly,  a  quasi- 
monopoiy,  enduring  for  a  consideraltle  time,  is  likely  to  appi-ar 
wherever  industry  is  conducted  on  a  very  large  scale.  For  an 
indefinite  period  something  more  than  ordinary  or  competitive 
gains  may  be  secured.  tJiven  the  constant  enlistment  of  fresh 
ability  of  u  high  order  in  the  management  of  the  great  com- 
binations, and  the  profits  may  be  kept  V(>ry  large  l)y  men' 
force  of  greal  size,  great  capital,  great  overawing  of  would-be 
competitors.  There  is  the  possibility,  even  the  prob.aljility,  of 
a  gain  which  is  in  excess  of  interest  and  of  economic  rent,  as 
thesi'  have  been  analyzed  in  the  preceding  cliapters;  in  excess, 
too  of  "busit-ess  profits,''  as  this  sort  of  income  will  be  analyzed 
in  the  chapters  i\cxt  following;  a  gain,  therefore,  which  is  to 
be  classed  as  a  monopoly  return. 

§  1.  As  the  rent  of  land  may  be  capitalized  in  the  selling 
price  of  land,  so  mo.iopoly  g.ains  may  be  capitali/cd  in  the 
Helling  price  of  the  monopolized  piiue  of  property.  This  hap- 
pens nowatlays  most  commonly  through  the  m<'chani- 
corfKtratiiMis  and  through  llif  "watering"  of  corporate  s  i- 
ties,  When  a  corporation  having  some  sort  of  monopoly  ad- 
vantage s  -cures  high  return-^,  its  share-*  may  yield  largi-  divi- 
dends and  may  sell  at  a  high  premium  ;  or  the  nuniini  nf  share> 
may  be  increasi-d  or  wati'H'd,  an  1  the  same  relurie^  di- 'rilnilcd 
among  th(«  owners  in  the  form  of  lowiT  dividends  on  a  lar;;er 
numlHT  of  shares.  'I'hc  tol  al  M'lling  value  of  t  he  shares,  whit  \\rr 
vol..  II      I 


1  i 


114 


THE  DISTRIBUTION  OF  WEALTH 


of  a  small  number  at,  a  hij^h  price  or  of  a  largo  number  at  a 
moderate  price,  will  represent  in  either  case  the  cai^italization 
of  the  net  earnin(i;s  at  the  current  rate  of  interest  ii  investments. 
Vested  interests  present  (jiiestions  of  the  same  sort  in  the 
case  of  monopolies  as  in  the  case  of  land.  Where  some  kind 
of  exclusive  privilege  has  i)een  expressly  granted,  and  monopoly 
gains  have  consequei.^Iy  arisen,  the  terms  of  the  grant  cannot 
but  be  observed.  Even  wiiere  there  has  been  no  grant  for  a 
clearly  specified  term,  but  only  the  long-continued  mainte- 
nance by  the  public  authorities  of  settled  policy,  vested  rights 
are  entitled  at  least  to  some  degree  of  consideration.  Thus,  in 
certain  American  cities,  street  railways  have  no  privileges  for 
any  statcvl  perioil  of  y(>ars,  and  are  subject  to  regulatiim  at 
will.  Yet  where  they  have  in  fact  carried  on  their  oj)erations 
undisturl'cd  for  an  indcliiiite  period,  and  where  pun'hases  of 
securities  have  been  repeatedly  and  continuously  made  in  the 
expectation  tiiat  the  status  quo  will  be  maintained,  the  holders 
have  a  position  not  very  ditTereiit  from  those  of  the  landowner 
who  has  bought  a  site  in  good  faith.  On  the  other  hand, 
where  such  rights  have  been  given  for  a  limited  period  or  in 
express  terms  sul)ject  to  public  modification,  the  investor  must 
be  held  to  have  taken  his  risks.  Still  more,  a  future  rise  in 
yield  and  in  selling  value  is  clearly  open  to  aj)propriation  by 
the  public. 


'I 


i 


km 


CHAPTER  46 


T»'"    Nature  and  Definition  ok  Capital 

§1.  The  gradations  of  monopoly;  tli(>  analogies  between 
monopoly  gains  and  ren*  (in  part  still  to  be  set  forth) ;  the  often 
shadowy  line  of  demarcation  between  interest  and  the  other 
incomes  from  property,  —  all  these  suggest  the  question 
whether  the  whole  conception  of  capital  and  of  income  from 
'  ipital  does  not  need  revision. 

In  recent  times  jnany  economists  have  questioned  the  validity 
of  the  distinctions  drawn  in  the  preceding  pages  between  the 
tlifferent  instruments  of  production  and  the  different  sorts  of 
return  to  their  owners.  The  distinction  between  land  and 
cai)ital  has  perliaps  been  most  (iuestione(l,  and  with  it  the 
corresponding  one  between  rent  and  interest.  But  the  dis- 
tinction between  rent  and  monopoly  gains  has  also  been  drawn 
into  doul't,  and  h(>nce  that  lietween  land  and  monopolized 
capital  K  .i.  There  lias  bein  a  general  disposition  to  recon- 
sider what  should  l)e  ^'ichideil  under  the  term  "capital,"  and 
what  is  the  .social  significance  of  the  various  incomes  accruing 
from  t  "  ownership  of  property. 

There  are  several  tenaiile  grounds  for  regu'-ding  all  these 
incomes  as  homogeneous. 

In  the  first  place,  n(»  returns  are  earmarked  as  monopoly 
gains  or  as  rent  ;  none  are  distinguislial)le  at  sight  from  simple 
intirest.  When  it  is  saiil  that  land  "yields"  economic  rent, 
the  phra.si'  is  useij  cljiptically  ;  so  also,  "'hen  it  is  said  that  a 
patent  or  an  industrial  monopoly  "yields"  a  monopoly  return. 
What  happens  is  that  in  pro|)ortion  to  the  lal)or  or  outlay  \'\ 
prejHiriiig  uiiil  tiliiiiir  flie  land,  the  output  is  large,  and,  in  tin' 
ease  of  mono|M>ly,  that  the  r.-cei|)tH  are  large  in  projjortion  tt» 
the  expenses  of  constructing  the  plant  and  operating  it.     in 


i 


116 


THE  DISTRIBUTION  OF  WEALTH 


0 


either  case  there  is  an  exceptio"il  return,  a  surplus  yield. 
But  this  is  distinguishable  from  interest  only  on  the  assump- 
tion th.i  re  is  a  well-tlofined  nonexceptional  return,  —  one 
normal  .  capital  subject  to  unfettered  competition.  In  any 
concrete  case  there  is  always  a  difficulty  in  setting  apart  with 
precision  that  return  which  would  be  received  under  competi- 
tive conditions  from  the  surplus  which  would  disappear  if  com- 
petition were  free. 

Further:  the  divergences  from  the  "normal"  return,  or 
simple  interest,  are  many  and  various.  They  shade  into  each 
other  by  gradations.  All  sorts  of  industries  present  a  differen- 
tial elemt  nt ;  not  only  the  urban  site  in  the  heart  of  a  me- 
tropolis and  the  valual)le  patent  monopoly,  but  the  factory 
establish(>d  at  a  "strategical"  point  and  that  which  has  a  quasi- 
monopoly  of  prestige  and  trade-mark.  Then*  are  plenty  of  in- 
dustries and  i>hints  wlier(>  for  very  long  piTiods  much  more 
than  simple  inter(>st  is  sccunnl.  There  are  others  where  much 
less  is  secured.  The  older  writers  often  described  the  industrial 
situation  as  presenting  a  few  cases  of  monopoly,  and  some  other 
cases  of  easily  distinguished  "rent";  and  then  a  great  stretch 
of  industries  having  normal  profits.  Rut  this  does  aot  truth- 
fully repr(>sent  the  extraordinary  variety  and  irregularity  of  the 
world  as  it  is. 

Again,  in  view  of  the  diversities  in  the  rates  of  return,  it  is 
reasonable  to  say  that  monopoly  returns  are  not  .separable 
from  (-coiioinic  rent.  They  do,  indeed,  present  .some  peculiari- 
ties. The  essential  element  of  true  m(mo|Hjly,  as  we  have 
defmed  if,  is  control  of  the  supply;  and  no  doubt  it  is  true 
tliiit  ,so  fur  as  a  monoi)olisl  has  this,  he  is  in  a  dilTerent  j)osition 
from  the  person  who  Ims  merely  a  dilTerential  advantage  in 
[irodiiciiig  a  part  of  the  sup|)|y.  Rut  complete  inono|M)ly  con- 
trol is  very  rare;  some  sort  of  comiM-titive  or  inferior  substi- 
tute is  commonly  to  Ix-  reckoned  with.  Monoi)oly  gains  then 
may  lie  said  to  be  only  a  variety  of  the  sfx-cies  "rent."  And 
in  any  e.-ise  monopoly  gains  ivst  on  tlu^  fact  that  the  thing 
monoiwili/.ed  has  high  sdviceability  or  utility;  it  yieltis  more 


THE  NATURE  AND  DEFINITION  OF  CAPITAL       117 


in  the  way  of  eventual  satisfactions  than  other  things;  and 
hence  it  may  be  said  to  yield  a  differential  return,  very  much 
as  a  good  water  power  or  a  fertile  field  yields  a  differential 
return.  What  its  owner  gets  is  thus  analogous  to  the  "rent" 
derived  from  a  natural  agent. 

§  2.  Considerations  of  this  kind  have  led  to  a  method  of 
approaching  the  problem  of  property  income  very  different 
from  that  followed  in  the  preceding  chapters.  It  is  said,  and 
with  undoubted  truth,  that  all  concrete  instruments  of  produc- 
tion have  a  derived  value.  They  get  their  value  from  the  utili- 
ties which  in  the  end  they  bring  about  or  aid  in  brinKi..„  about. 
The  income-yielding  power  of  a  cotton  mill  results  from  the 
price  of  the  cotton  goods,  which  in  turn  rests  on  the  utilities 
of  the  goods  to  consumers.  The  income-yieliling  power  of  a 
street  railway  rewts  on  the  utilities  of  rapid  transportation; 
that  of  a  house  lot  on  the  agreeableness  of  dwelling  on  the  site ; 
that  of  business  premises  on  their  convenience  for  making  or 
distributing  commodities.  Some  of  these  instruments  are 
more  effective  in  supplying  utilities  than  others,  and,  in  propor- 
tion as  they  are  more  elTective,  are  mor(>  valuable.  But  all 
belong  to  the  same  class :  they  are  immature  utilities,  so  to 
speak,  and  are  valual)le  in  proportion  to  th«>  satisfactions  that 
in  the  en<l  will  ripen. 

It  is  a  further  development  of  this  train  of  thought,  and  a 
further  proposed  change  in  phraseology,  to  say  that  every 
instrument  yields  a  "rent,"  -a  rent  not  in  the  older  sense, 
b\it  in  quite  a  new  sense.  That  "rent"  is  its  yield  or  its  in- 
come; in  the  sense  in  which  the  possessor  of  a  settl;>d  income 
is  styled  ((m  the  co:itinent  of  l''urope)  a  "rentier."  It  is  the 
net  income  yii'ld  of  the  inslrument,  resulting  from  thi'  utilities 
which  the  instrument  j)rovid''s  or  aids  to  provide.  Whether 
it  be  a  huge  steamship  made  by  much  lat>or  or  a  lucrative 
city  lot,  the  income  of  the  owner  depends  on  whnt  this  con- 
crete thins  vields  in  the  w-iv  <>f  addition  to  the  ultimate 
income  of  the  coninumity  T1h>  oive  as  well  as  the  other  is 
based  on  Horviceubility.     Tlu-  owner's  income,  it  is  sai<i.  may 


1,. 


I 


I 


118 


^f 


THE  DISTRIHUTION  OF  WEALTH 


!     ! 


If' 


be  regarded  as  "rent"  or  as  "interest,"  according  to  the  point 
of  view.  Regarded  as  a  gross  amount,  it  is  the  rent  of  the  in- 
strument ;  regarded  as  a  percentage  on  the  property  or  capital 
embodied  in  the  ship  or  the  lot,  it  is  interest.  Capital  being 
regarded  as  homogeneous,  and  as  including  all  the  various 
kiiuls  of  instruments,  all  return  from  it  is  homogeneous.  The 
return  is  regarded  in  a  different  light,  but  is  not  per  se  different, 
according  as  we  dub  it  interest  or  rent. 

Pursuing  this  train  of  thought  further,  v"  might  say,'  that 
capital  is  of  two  kinds,  —  artificial  and  natural.  Natural  capital 
is  that  which  has  been  classed  under  the  general  head  of 
"land"  or  "natural  agents";  artificial  capital  includes  all  in- 
struments made  by  man.  Natural  capital  may  be  highly  use- 
ful and  highly  valuable,  us  in  the  ca.se  of  a  rich  mine  or  a  deep- 
harbor  site.  In  that  case  it  may  l)e  said  to  contain  or  embody 
a  gn>at  deal  of  capital.  A  street  railway,  or  a  factory  in  which 
a  monopolized  article  is  produce(l,  may  l)e  aaiil  also  to  contain 
or  eml)ody  an  exceptional  amount  of  capital.  Their  valuation 
is  high ;  their  capitalization  indicates  the  existence  of  a  largo 
volume  of  capital. 

Evidently  still  another  question  is  here  involved :  how  meas- 
ure the  amount  of  capital?  The  reasoning  just  stated  would 
me-isure  it  in  terms  of  value.  And  (his,  too,  is  the  ordinary 
business  method  of  measurement.  A  mine,  a  railway,  a  parcel 
of  real  estate,  a  factory,  each  is  valued  on  the  basis  of  its  net 
income  ;  it  is  capitalized.  The  distinctious  sought  to  be  drawn 
by  economists  between  interest,  rent,  and  monopoly  gains 
find  no  response  in  the  world  of  affairs.  There  all  property  is 
valued  in  terms  of  its  income;  all  that  !)rings  in  an  income 
is  alike  capital,  and  all  is  measured  or  capitalized  on  the  basis 
of  its  income.  Thos«'  economists  who  dissent  from  (he  older 
view  follow  the  business  conununity's  way  of  defining  and 
measuring  capital.  In  that  older  view,  on  the  other  hand, 
the  dennitioii  of  cnpltn!  as  instru!T<!-r;(s  'niide  hy  m-tn  |--d  f)  't= 
nu-asurement  in  a  very  different  way,  —  namely,  in  terms  of 

'  With  Profi'Hior  .\.  8.  .loliri«nii,  ltilr,ilH,tion  ^^  fcVimowtVj.,  ji.  107. 


THE  NATURE  AND  DEFINITION  OF  CAPITAL     119 


coHt,  of  oxjionse,  of  labor.  As  will  appear  later,  these  are  not 
precisely  ((luivaleiit  terin.s  ;  '  but  for  the  purpose  of  the  present 
discussion,  discrepancies  between  labor  involved  and  expense 
incurred  may  be  neglected.  In  the  main,  capital  was  measured, 
in  the  older  view,  in  terms  of  labor  involved.  Capital  meant 
previous  labor  or  emluidied  labor;  and  capital  was  more  or  less, 
ncjt  according  to  its  value,  but  according  to  the  amount  of 
labor  involved  and  the  length  of  time  over  which  that  labor 
was  spread.  The  dilYercnci;  between  the  older  and  the  newer 
views  is  similar  to  that  between  a  "commercial"  and  a  "phys- 
ical" valuation  of  a  railway. 

Pushed  to  its  last  consec]uences,  this  valuation  principle  leads 
to  som«'  results  that  take  one  aback.  A  pul)lic  debt,  say  in 
the  form  of  a  French  "  n-nte  "  (that  is,  a  mere  promise  to  pay 
an  annual  sum),  is  capitalized  in  terms  of  selling  value;  and  it 
becomes  "capital."  .\  burd(>n  on  the  community  is  thus  in- 
cluded vmder  the  ttTUi  "cajiital,"  which  yet  indicates  in  general 
the  useful  apparatus  of  the  connnunity.  A  naked  patent  right 
or  "franchise,"  not  yet  attached  to  a  i-oncrete  instrument, 
becomes  capital.  A  peri)etual  pension,  sut;h  as  the  English 
Parliament  used  to  grant  to  royal  favorites  or  military  heroes, 
lu'comes  "capital";  it,  too,  can  be  measured  in  terms  of  value, 
and  cajjitalized.  Nay,  a  human  being,  in  so  far  us  he  is  an 
instrument  for  production.— ami  he  may  be  conceivably 
regarded  as  such,  just  a.s  a  slavi"  is  an  asset,  —becomes  "capi- 
tal "  ;  and  then  return  to  labor,  as  well  as  income  from  property, 
may  be  regarded  as  "interest"  or  "rente."* 

From  still  anotluT  |)oiii(  of  view,  th(!  distinctions  beiwcn 
interest  and  rent  and  monopoly  gains  have  been  discarded,  — 
namely,  from  the  socialist  point  of  view.  To  the  socialist 
the  difference  is  simply  lietween  tweedledum  and  tweedledce. 
All  these  inconu's  are  unnecessary  and  unjustilieil.  All  result 
from  a  l)ad  social  system,  and  should  be  abolished.     And  it  is 

1  Src  f«-inw  ill  iiiin  I»i"ik,  (implrr  i">. 

•Tliid  rxtrniic  iipplu  iitimi  nf  tlir  r.iwiiiind  U  iimilc  liy  Pr<)((Si*..r  I.  lUtii  r. 
^.7.m<■/l^y  ../  l':ron„m,>-  Sn.wr.  ClKUitir  XXIV,  §1.  ( 'uiiipiir.'  .1.  H.  fliirk, 
hiHlrthutton  of  Wiiilth.  Clmiitir  XMI. 


(,'■ 


!,■«■ 


120 


THE  DISTRIBUTION  OF  WEALTH 


I' 
Its  ■ 

?! 


1=    ■  "V 


i  tc 


true  that  all  are  alike  iu  that  they  make  possible  the  leisure 
class.  This  last  is  thf  phenomenon  in  existing  society  which, 
when  once  i)rivilege  is  no  longer  regarded  as  part  of  tlie  order 
of  nature,  most  calls  for  explanation.  Wiiy  should  a  con- 
siderable nuinlxT  of  ablo-l)odi('d  persons  live  in  idleness  and 
plenty  ?  That  the  :.  ',ed  a'ul  inhnn,  tlio  children  and  even  the 
women  (at  least  the  married  women),  should  not  be  engaged  in 
the  ordinary  productive  occupations,  seems  proper  enough; 
but  why  should  healthy  adult  men  not  labor  to  contribute  to 
the  general  welfare  of  society?  In  the  feudal  system,  the 
privileged  classes  were  at  least  called  on  to  render  military 
service.  In  our  own  society,  they  are  called  on  for  no  service 
at  all.  Is  this  inevitable?  Is  it  just?  Is  not  this  question 
the  same  for  all  of  the  leisure  class,  and  for  all  of  their  incomes? 
Do  they  not  all  own  "capital,"  and  all  alike  secure  a  capitalist 
income  ? 

§  3.  Two  important  questions  underlie  these  matters  of 
definition  and  phraseology.  One  is  a  question  of  taxonomy,  of 
cold  classification :  are  there  suflficient  difTerences  between  the 
various  sorts  of  income  from  projMTty  to  make  reasonable 
different  names  for  the  incomes  and  for  the  kinds  of  property  ? 
The  other  is  a  question  of  large  social  import :  are  there  grounds 
for  ai)plying  a  different  i)ublic  policy  to  the  variou..  sorts  of 
income?  Both  questions,  as  it  happens,  turn  in  the  end  on 
the  same  poiiu  :  is  there  effective ;iess  of  comj)etition  as  to 
capital  (artificial  cai)ita!),  and  is  *here  a  normal  comjjetitivo 
return  usually  secured  from  investment  and  neeiu ul  in  order 
to  induce  invest mei't  ? 

It  is  clear  that  tliere  is  not  effectiveness  of  competition  or 
equalization  of  return  as  to  "natural  «'apital."  —  land  and 
natural  agents.  The  ix'tter  amoiig  these  agents  yield  more 
than  those  less  good.  So  far  as  tliere  is  similar  ineffectiveness 
of  competition,"  and  similar  ineijuality  in  return,  among  the 
instnnncnts  made  by  ni.-i!),  fh^-ir  yi.ld  !,!v--:r!it^  no  pheno!nr-n^ 
OH.sentially  different  from  those  of  natural  agents.  Hut  if  there 
be  effective  competition  between  the  va-ious  forms  of  artificial 


THE  NATURE  AND  DEFIXITIOX  OF  CAPITAL       121 

capital,  no  one  among  them  will  in  the  long  run  bring  to  its 
owner  an  exceptional  or  differential  return;  then  there  is 
interest,  and  interest  only,  on  capital  iu  the  narrower  sense; 
and  then  there  is  a  substantial  difference  between  "interest" 
and  "economic  rent." 

On  this  matter  of  the  actual  efficacy  of  competition,  we  must 
speak  with  reserve.  In  some  directions  it  is  clear  that  the 
older  notion  of  full  competition  between  all  forms  of  artififial 
capital  must  be  given  up.  There  are  industries  in  which  large- 
scale  operations  and  increasing  returns  lead  inevitably  to 
monopoly,  —  such  as  many  of  the  so-called  public  service 
industries,  —  and  in  which  the  return  is  in  so  far  analogous  to 
economic  rent  in  the  older  sense.  There  are  the  trusts  and 
qua.si-monopolies  in  which  similar  variation  from  a  supposed 
normal  return  is  found.  And  even  in  industries  outside  the 
pale  of  monopoly  or  coml)ination,  there  are  extraordinary 
variations  in  the  returns  got  by  the  owners  of  factories,  ware- 
houses, ships ;  so  that  there  seems  ground  for  rejecting  the 
whole  supposition  of  equalization  in  yield  from  artificial  capital, 
and  so  for  rejecting  all  distinction  between  rent  and  interest. 

Yet  in  the  long  run,  for  probably  the  greater  quantity  of 
"artificial  capital,"  the  matter  takes  a  iliffercnt  aspect.  Though 
the  competitive  r(''gime  has  broken  down  over  a  considerable 
range  of  infiustries,  it  has  not  yet  ceased  to  be  the  prevailing 
rdgime.  Though  there  arc  great  variations  in  the  returns  secured 
by  the  owners  of  almost  any  form  of  concrete  cajjital,  these  are 
mainly  explical)le,  as  will  presently  ai)i)ear,'  from  differences  in 
the  business  capaciti(>s  of  the  owners.  Setting  a,side  the  dif- 
ferences so  explained,  and  those  due  to  the  irregularities  of 
demand ;  having  regard  to  the  slowness  witli  which  new  plant 
can  be  made,  and  the  even  greater  slowness  with  wliich  old 
plant  wears  out;  looking  at  the  long-run  re-;ults,  —  we  find 
that  there  is  after  all  a  tendency  to  eciualization  over  a  larg(! 
part,  probably  the  larg(>r  i);irt.  of  the  industrial  field.  If  a 
particular  kind  of  artificial  capital  proves  exceptionally  profit- 

'  8ft'  liildw,  CliupliT  49. 


122 


THE  DISTRIBUTION  OF  WEALTH 


«  K 


, 


•«!-. 


' 


able,  more  of  that  kind  will  l)e  made,  and  the  return  on  it  will 
be  lowered.  In  this  probability  lies  the  essential  ground  for 
distinction  between  capital  and  land,  interest  and  rent,  com- 
petitive gains  and  monopoly  gains.  If  the  return  on  every 
specific  kind  of  concrete  instrument  were  a  mere  matter  of 
accident,  or  at  least  were  not  amenable  to  any  competitive  or 
equalizing  influence,  —  then  all  alike  would  be  mere  "rent" 
yielders,  and  would  have  a  value  resting  once  for  all  on  the 
utilities  provided  through  them.  he  conditions  of  demand 
alone  would  govern.  But  tlie  conditions  of  supply  affect  the 
larger  part  of  the  concrete  instruments.  Only  a  part  are  limiterl 
natural  agents,  or  are  shielded  from  competition  l)y  a  monopoly 
position.  Hence  we  can  speak  of  a  normal  return,  or  interest, 
in  the  one  case,  and  of  rent  and  monopoly  gains  in  the  other 
cases. 

The  same  conclusion  can  be  stated  in  another  way:  there  is 
a  broad  margin  at  which  tlie  return  to  capital  is  settled,  — 
settled  at  that  normal  rate  which  in  the  long  run  sufFices  to 
induce  saving  and  accumulation.  Other  gains  to  the  owners 
of  concrete  instruments  are  measured  by  the  excess  above 
what  is  got  at  tiie  margin.  Tlu>se  extra  gains  are  in  some 
respects  similar  to  .  conomic  rent,  in  some  respects  different. 
Their  extent  and  variety  is  much  greater  than  was  supposed 
!)y  the  economists  who  first  worked  out  the  principle  of  rent, 
and  they  iiave  a  great  effect  on  the  distribution  of  wealth. 
But  so  long  as  the  broad  competitive  margin  persists,  they 
leave  imaffeeted  the  distinction  between  the  normal  or  "earned" 
return  on  capital,  and  the  excessive  or  "unearned"  return. 

In  answering  our  first  question,  tiie  t.ixonomic  one,  we  have 
by  imi)lication  answered  the  second,  also.  Int(>rest  on  artificial 
capital,  as  settled  under  competitive  conditions,  presents  dif- 
ferent social  ]iroblems  from  tliose  present(«d  by  the  rent  of 
natural  agents  or  by  monopoly  gains.  Tiie  one  is  an  inevitable 
part  of  tlie  r(^gime  of  i)rivatc  property;'  the  others  are  not, 
or  at  least  are  inevitable  only  in  so  fjir  as  vested  interest**  must 

'  Cunipan;  ul^u  whut  ia  said  bcluw  in  tbU  Bouk,  Cluiptcr  51. 


THE  NATURE  AND   DEFINITION   OF  CAPITAL        123 


he  respected  or  as  the  exact  line  between  interest  and  surplus 
returns  proves  impossible  to  draw.  Economic  rent  and  mo- 
nopoly gains  are  unearned  returns,  and  should  be  treated 
differently  from  r'turu  on  capital  pure  and  simple.  This  is 
indiH'd  admitted  by  the  economists  who  are  disposed  to  treat 
all  "capital"  as  homog(>neous.  When  it  comes  tc  problems  of 
legislation,  —  of  taxation,  for  example,  or  matters  of  public 
regui.ition,  —  they  agree  that  the  various  capitalistic  incomes 
shoukl  be  dealt  with  diiTerently :  those  from  the  better  natural 
agents  or  monopoly  Industrie's  should  be  curbed  ;  those  from 
coinpetitive  capital  should  in  the  main  be  allowed  to  go  their 
way.'  The  socialists,  on  the  other  hand,  hold  that  these  sorts 
of  income  are  alike  unnecessary  and  unjustified,  and  alike 
should  be  swt>pt  away.  It  is  from  this  point  of  view,  at  all 
events,  that  t!ie  question  of  classification  and  nomenclature  is 
most  important.  Economics  is  in  a  special  sense  a  pragmatic 
subject.  Its  truths  are  eminently  truths  in  the  sense  that  they 
concern  us.  Its  answers  are  answers  that  declare  what  we 
should  do.  As  to  any  question  of  classification  and  distinc- 
tion, the  test  of  truth  is,  what  of  it?  what  follows?  In 
economics  the  consequences  that  follow  are  ultimately  con- 
sequences for  general  welfare  and  i)ublic  regulation.  So  con- 
sidered, the  question  whether  income-yielding  property  is 
homogeneous,  and  all  the  sorts  of  income  essentially  of  the 
same  sort,  is  to  be  answered  in  the  negative. 

'  Iti  tlu;  main ;   cuiuparc  Book  VIII,  Chapter  60,  $  5. 


:m^ 


i^r.jgirw. 


jf 


%' 


I 


t.': 


\ 


ti 


'■  'I? 


Mir 


CHAPTER  47 

Differences  of  Wages.    Social  Stratification 

§  1.  Wages  are  commonly  thought  of  as  a  separate  and 
clearly  distinguished  form  of  remuneration,  appearing  when 
one  man  is  hired  to  work  for  another.  N'ery  often  they  are 
part  of  a  mixed  or  combined  return,  as  when  a  farmer  owns  his 
land  and  capital,  and  gets  rent  and  interest  in  addition  to  a 
return  for  his  labor.  In  almost  every  case  where  a  worker  is 
not  hired  by  another, — a  physician  or  lawyer,  or  artisan  work- 
ing on  his  own  account,  —  there  is  some  combination  of  returns. 
The  theory  of  wages  should  consider  the  remuneration  of  every 
sort  of  labor,  that  constituting  a  jiart  of  thc^  comj)lex  earnings 
of  such  independent  workmen  as  w(  11  as  that  constituting  the 
sole  earnings  of  a  hired  laborer.  But  most  of  the  problems 
are  sufficiently  dealt  with  by  an  examination  of  the  case  of 
hired  laborers,  with  incidental  consideration  of  tiiose  not  hired. 

Though  it  woulil  appear  louful  to  examine  first  the  causes 
which  act  on  the  gineral  rate  (il  wages,  the  way  is  cleared  by 
taking  up  first  the  causes  nf  differences  in  the  earnings  of 
various  .sorts  of  labor  and  some  other  topics  cloM>Iy  connected 
with   those  difTerences.      The   theor      of  general  wages  is  re- 

TV     l.-ist. 


served  for  treatment  at   the 

DifTerences  of  Auges  may  be 
that  equalize  ttu  ittrictiviMn 
persist  irresi)ecii  !■  oi  their  ' 
between  occiipaiiun^  Acre  [n 
former  sort  woi,.!  xi^t.  '^ 
may  be  called     n;  siizinii     ;ffc-'^>n!'f'- 

If  choice  wen     -"o,  jis  ;iiir'««iss?it   .;t— T:imnon  would  command 
a  lower  rate  of  pa     tiaej   !i»     »it  .as^r^Mw  .     ^'»mething  would 


under  Mvo  heads,  —  tho.se 

'  ipat    11-.  and  those  tr.at 

THi     ivt-ness.     If  choice 

i'  difTerences  of  the 

>niii   »vith   these,  which 


m^.--;%r:;:^^i^{<:^^:A 


DIFFERENCES   OF  WAGES 


125 


.^ 


I 

I 

i 


need  to  be  given,  in  the  way  of  nremium,  to  offset  unattractive- 
ness.  As  between  oeeupations  of  similar  grade,  open  to  per- 
sons of  the  same  class,  we  find  differences  that  are  explicable 
on  this  principle.  A  woman  or  girl  working  in  a  factory  or  shop 
receives  in  the  lTnit<'d  States  a  lower  rate  of  i)ay  than  a  domestic 
servant.  Though  the  payment  in  money  to  both  is  often  very 
nearly  the  same,  the  servant  reciives  in  atlditioii  her  food  and 
lodging,  and  her  total  renumeratioii  is  very  nnich  higher.  The 
main  explanation  is  that  in  a  democratic  coniimmity  domestic 
service  is  repugnant ;  it  has  the  associations  of  a  menial  position. 
The  shop  girl  often  has  longer  hours  and  harder  work.  But 
her  work  is  of  a  mon^  imj'tTsonal  sort,  and  her  hours  are  strictly 
defined.  When  the  day'-  work  is  done,  she  is  her  own  mistress. 
In  European  countries,  where  the  si)irit  of  freedom  and  the 
y(>arning  for  eciuality  are  less  awakened  than  in  the  United 
States,  considerations  of  this  sort  count  for  much  less;  and 
domestic  service  th(>re  receives  no  such  comparatively  high 
"ages.  American  housekeepers  of  the  well-to-do  class  com- 
plain of  the  scarcity  and  the  high  wages  of  servants,  usually 
without  an  inkling  that  these  are  the  results  of  the  spirit  of 
democracy. 

In  another  range  of  occupations,  the  principle  is  illustrated 
by  the  {>ay  of  university  teacher:.  Much  has  been  said  of 
late  years  in  this  covmtry  of  the  low  ra!if:;c  of  professors'  .salaries. 
Verj'  possibly  it  is  true  thit,  as  eompareil  with  earnings  in 
other  occupations  of  the  same  grade,  and  for  persons  of  the 
same  training  and  aliility,  the  range  has  been  low,  —  so  low  as 
to  make  the  occupation  less  attractive  than  it  sliould  be  to  ai)!e 
men.  But  the  calling  has  great  charms.  The  respect  wliich 
it  enjoys,  the  settieil  und  moderate  routine,  the  i)leasure  of 
intellectual  interest  and  aehievenienl,  the  long  vacation, — 
these  make  it  attractive,  ev(>n  with  pay  less  than  that  of  com- 
peting occupations. 

Peace  nC  mind  a!id  industrial  securitv  are  v.'ilue'.i  bv  most 
people ;  hence  govermnents  and  large  corporations,  able  to 
promise  continuous  emi)loyment,   can  secure  their  employcca 


VI 


Ci 


126 


THE  DISTRIBUTION  OF  WEALTH 


PI 


Hi 


at  comparatively  low  vvaRos.  Whore,  incWd,  public  business  is 
not  managed  on  strictly  fiscal  principles,  this  consequence  does 
J.ot  show  itself.  In  most  democratic  communities,  and  espe- 
cially in  the  newer  ones,  like  the  United  States  and  Australia,  the 
government  is  exiMu^ted  to  pay  more  than  the  private  employer, 
irrespective'  of  the  steadiness  and  attractiveness  of  its  work. 
The  great  bulk  of  the  workmen,  though  they  are  not  in  govern- 
ment employ,  ai)[)rove  of  the  lavored  position  of  those  who 
are;  partly  because  of  general  class  sympathy,  partly  because 
of  ignorance  of  the  economic  effects.  Nothing  is  mon-  certain 
than  that  higher  wages  to  public  employees  come  out  of  tho 
pockets  of  the  rest  of  the  community.  Hut  such  wages  are 
none  the  less  welcomed  by  other  emplovees,  because  of  a  notion 
that  they  have  an  ujjlifting  elTect  on  wages  at  large. 

§  2.  Irregularity  of  employment,  on  the  other  hand,  may 
be  expected,  so  far  as  con<|M'titioi<  is  free,  to  make  wages  higher. 
It  is  said  that  bricklayers  receive  higher  wages  than  carpenters, 
largely  from  this  cause;  their  work  being  more  likely  to  be 
interrupted  by  the  weather  and  the  seasons.  So  far  as  the 
higher  pay  per  day  or  per  hour  simi)ly  offsets  the  smaller  time 
actually  given  to  work,  there  is  here  no  difference  in  the  total 
remuneration.  But  if  the  greater  uncertainty  makes  the 
occupation  unattractive  to  most  men,  it  will  cause  the  total 
remuneration  to  b»>  higher.  I'nfortunately,  most  manual  work- 
men have  not  the  foresight  and  intelligence  necessary  for  dis- 
coi.Mting  wages  which  seem  high  but  are  uncertain.  It  may 
be  doubted  whether  irregular  or  hazanlous  work  usually  yiehls 
wages  striitly  in  pro|)orlion  to  its  actuarial  worth. 

This  same  inider\ahiiiliti!i  of  risk  shows  itself  in  the  attrac- 
tiveness of  (Kciipalions  in  which  there  are  prizes.  The  law  is  a 
profesNion  in  wliii  h  tin  it  are  grenl  (lossibilities.  —  the  chanc(> 
of  H  handsome  income,  and,  not  least,  the  ulittering  possiiiility 
of  success  and  fame  in  tlm-e  |miI>Iii'  pos(^  to  which  the  law  is 
the  nalu-  il  pathway.  Ifence.  iioiwiUiNliuidnig  the  need  of  an 
expensive  training  mv  he  certainty  of  ii  v|,,w  rise  to  full  earning 
power,  it  draws  more  men  of  promlM'  mid  cajmcity  than  any 


DIFFERENCES  OF  WAGES 


127 


other  of  the  learned  pntfcssions.  Aguin,  tlie  training  of  an  opera 
singer  is  highly  elaborate  and  costly,  and  also  involves  a  large 
possibility  of  eoinj)lete  failure.  Yet  the  great  prizes  —  the 
extraordinary  fees  of  the  notable  few,  and  tlieir  eonspieuous 
though  short-lived  fame  —  attract  so  many  that  for  the  occupa- 
tion as  a  whole  there  is  probal)ly  liut  a  very  iiuxh'rate  return. 

An  occupation  which  calls  for  a  i)rolonged  and  expensive 
training  will  have,  ceteris  /xirihux,  a  relatively  high  reward. 
Physicians,  engineers,  teachers,  lawyers,  must  e(iuip  theujselves 
by  years  of  study,  and  ordinarily  must  serve  some  sort  of  a])- 
prenticeship  even  after  the  period  of  set  .stu<ly  has  been  passed. 
It  is  obvious  that  people  will  not  ii\(  ur  the  reijuired  outlay 
unless  there  is  a  prospect  of  earnings  at  least  in  some  degree 
commensurate.  Xo  donlit  this  factor  operates  in  combination 
with  others;  and  there  is  great  irregularity  in  the  final  out- 
come. Not  only  do  prizes  in  an  occupation  affect  the  resort 
to  it,  and  lead  people  to  imdertake  a  costly  preparation  without 
a  cool-heade(l  cal(  uladon  of  the  <liances  of  sticcess  ;  but  parents, 
through  whom  the  decision  to  enter  on  a  prolonged  trainii\g  is 
commonly  made,  are  not  solely  actuated  by  mere  calcula- 
tions of  gain,  nor  are  (hey  the  \>v<\  judg(>s  of  the  [jrobabilities 
of  gain.  Their  fir>t  wi-h  is  generally  to  provide  for  their  chil- 
dren greater  happitiess  in  life,  and  they  will  often  pay  for  an 
elaborate  education  chielly  for  the  sake  of  supposed  social 
advantages.  Often  they  do  not  wci).'h  with  impartiality  the 
(|Uestion  whether  their  children  h.-ivi'  the  inliori  (|ualities  to 
profit  by  sucli  an  edui'atiou.  On  the  other  hand,  any  oi-i-upa- 
tion  which  re(|iiires  eNjiensive  tiiiining  is  by  that  fact  closed 
to  the  inimeiisi'  niajoiily  of  the  proplr,  a  circum-^tanci'  wliidi, 
as  will  presently  lie  esplained,  is  of  at  least  M'^  nnich  im|iortani'e 
as  any  odier  in  cNpIainiiiR  llu'  clTecIs  of  education  arid  training 
on  variations  in  wane-. 

§  H.  If  re(|uiies  but  the  most  cursory  ■)bservation  to  how 
tliaf  such  e\|)!anations  of  the  xariations  i,  wages  a-*  have  just 
lieen  given  do  Tint  tell  t'le  whole  -^lory.  'I'lie  broad  fact  is  that 
the  attructive  and  eany  emploMneul-  do  not   in  general  com- 


« 


128 


THE  DISTRIBUTION  OF  WEALTH 


r      * 


il 

i 


.t 


i; 


mand  the  lowest  ray-  I^  is  more  nearly  true  that  they  com- 
mand the  highest  pay.  The  common  laborer  or  the  miner 
receives  less  for  his  hard,  dirty  work  than  the  skilled  workman 
for  his  lighter  and  cleaner  work ;  and  this,  though  the  latter 's 
hours  are  usually  the  shorter,  and  his  eniploynicnt  no  more 
irregular.  The  work  of  the  lawyer,  the  physician,  the  l)U8incss 
man,  is  easier  as  well  as  intrinsically  more  interesting,  more 
varied,  more  attractive,  than  that  of  most  sorts  of  manual 
laborers.  Yet,  even  after  due  allowance  is  made  for  the  expen- 
sive training  called  for  by  these  so-called  "liberal"  professions, 
their  earnings  are  large  as  compared  with  the  sacrifices  they 

involve. 

This  discrepancy  bi'tween  sacrifice  (work)  and  reward  coul<l 
not  exist  if  cluiice  between  occupations  were  free.  The  day 
laborer  would  l>e  glad  to  become  a  mechanic  or  engineer,  or  to 
advance  his  children  to  those  more  attractive  occupations,  if 
the  choice  were  open  to  him.  The  obstacles  are  in  some  small 
degree  due  to  a  quasi-monopoly  in  certain  occupations;  l)ut 
in  the  main  they  are  based  on  the  great  fact  of  long-ostablished 
social  stratification. 

Set  monoi)oly  of  any  sort  is  becoming  less  and  less  important 
in  the  mo(h'rn  world.  Legal  monoi>olic><,  such  as  those  of  the 
craft  gilds  of  the  .Middle  .\ges,  have  disupi»eared.  Something 
analogous  to  craft  monopoly  is  occasionally  ainuMl  at  by  trade 
unions,  admission  to  a  union  Itciiig  restricted  by  high  fees  or 
by  limitation  of  members,  and  cmiiloyment  iMTinitted,  so  far 
as  the  power  of  the  union  extends,  to  meinl)ers  only.  In  sonic 
trades  which  K'taiii  (he  haiidicrafl  cliariK'tcr,  and  in  which 
skill  can  I'c  iictiuind  only  tliiough  careful  iiistr  iction  an<l  long 
practi-c,  such  re- 1  rid  ions  have  Honirtiiin's  jiroved  effective. 
Hut  in  ni"  '  industiits  the  machine  teiuls  to  disphnr  the  to*)l. 
(lenetiil  al>ility  rather  than  .i)e(iali/,ed  skill  is  rc(niirc<|  fur  attain- 
ing lna^t(  ly  ;   no  Miiall  knot  of  incrhanics  can  keej)  und«'r  their 


ronfiu!  t:;!^  aft  uf  i'^iin-i  any  r-nv- 


I  :...! 


i'.f     'Vcrk  .\t?f!!!pt«H| 


laU)r  nainojKilies  have  usually  bioken  down.' 

i('.iM.|mr  •  n...ik  VI.  Cliiiii,  I  ,V".  |:i. 


DIFFERENCES  OF  WAGES 


129 


The  permanently  important  forces  are  not  those  inten- 
tionally set  in  iiKjtion  by  any  group  of  workmen,  hut  the  varied 
influeiu-es,  direct  and  indirect,  obvious  and  obscure,  wliich  set 
up  barriers  between  the  different  classes  of  society.  They  may 
be  considered  under  three  heads:  cxi)ensc  of  t'ducation  and 
training;  the  sulitle  influence  of  environment;  and,  finally, 
differences  in  inborn  gifts. 

§  4.    E.xpense  of  education,  as  we  have  alrea<ly  noted,  would 
bring  about,  even  under  free  coiiiix'tition,  hiidier  wages.     This 
is  most  obviously  the  case  where  the  parents  or  the  young 
persons  themselves  pay  for  the  training.     It  is  so,  even  if  the 
training  is  supplied  gratuit<iusly  in  i)ublic  s-hools  and  colleges; 
for,  though  instruction  itself  be  gratuitous,  support  must  be 
provided.     Only  if  the  state  were  to  sujjply  ecUication  of  every 
kind  on  the  terms  wiiich  it  grants  in  \\w  United  States  for  the 
army  and  navy  cadets  at  West  Point  and  Annapolis,  would 
the  burdens  which  education  entails  be  taken  entirely  from  the 
individuars  shoulders.     As  things  stand,  this  bunh'n  is  not 
only  heavy,  but  it  is  one  wliiiii,  as  it  becomes  heavier,  the 
poorer  members  of  the  community  can  less  and  less  undertake 
to  l)ear.    When  theday  laborer's  child  reaches  the  age  of  thirteen 
or  fourteen  (often  even  earlier)  tli(>  increasing  exp(>nse  of  sup- 
jxirt,  and  the  po^sibility  of  some  earnings,  cause  him  to  1)0 
taken  from  school  and  sit  to  work.     Only  rare  conditions  - - 
great  altruisn,  and  persistiMi.c  on  the  part  of  ])arents,  evidence  of 
exceptional  ability  it  the  child,  charitable  aid       enalil.-  him  to  go 
beyond  the  elementary  school.     Tin-  gateway  to  a  more  advanced 
educiition  is  virtually  do^eil.     The  child  of  the  mechanic  atul 
clerk  goes  a  lit  tie  fart  her  ill  hi' sch(M>liiig,and  is  niore  likely  tolind 
his  way  \nU    the  M'conilary  school.     Kvcii  so,  the  completion 
of  the  secondary  school  c\irri<ulum  is  unusual:    (he  path  for- 
ward is  cleare(|  but   a  little  way.     As  a  rule,  only  thos<'  wlio 
themselves    liave   enjoyed    a    higher   education    and    its   fruits 
.  ■      ..        ■.  .  1  <;   ..    I  ..    •!...:..    ..t.:i.L..,..    ..1-j,.        IIi.i!i.i% 

provi.lf     i«.i      iT-     i(iinpil-tioU     ;;.■■      liifi!      — :t:i-  •<       •' i.  -i- . 

dilTerenccs  in  reward,  and  tlie  social  clas'^es  which  re-^t  mainly 
on  them,  tend  to  perpetuate  themselves.     The  very  faet  that 
vol..  II       K 


130 


THE  DISTRIBUTION  OF  WEALTH 


■■  i 


i^ 


a  man  has  had  an  advanced  education  tends  to  secure  it  for 
his  children.  The  very  fact  that  a  laborer  has  not  had  it  is 
an  almost  insuperable  barrier  to  his  children's  securing  it. 

Expense  of  education  thus  affects  differences  of  wages 
doubly.  It  affects  them,  throuRh  the  working  of  competition, 
in  lifting  rewards  to  u  level  ut  least  high  enough  to  make  the 
exi)ense  worth  while.  It  affects  them  also  through  the  restric- 
tion of  competition,  by  imjieding  access  to  the  better  places 
for  nuiltitudcs  who,  were  they  al)Ie,  would  gladly  seek  it. 

Environment,  the  s(>cond  among  the  barriers  to  free  move- 
ment, cannot  be  sharply  separated  from  education  and  train- 
ing. To  the  factor  of  expense  in  education,  it  adds  another 
that  keeps  potential  competitors  from  trying  to  enter  the  more 
favored  ranks.  All  the  associations  of  nurture  and  family,  all 
the  force  of  example  and  imitation,  kfep  a  youth  in  the  range 
of  occupations  to  whicli  his  p.-mMits  In  iong.  In  a  highly  mobile 
and  democratic  comnumity  like  the  rnited  States,  environnv  ut 
tells  less  than  in  older  countries.  Hut  it  tells  nmch  in  all 
countries.  The  gifted  anil  alert  may  feel  atnbition  to  rise,  but 
the  mass  accept  the  conditions  to  which  they  are  hat)ituated. 

§  5.  Finally,  we  have  t<!  consider  differences  of  inborn  gifts; 
undoubtedly  great  and  of  far-reaching  effect,  vet,  in  their  in- 
fluence on  the  broad  phenomena  (»f  social  stratification,  not 
fiilly  understood.  Some  fundamental  ([ucstions  relating  to  this 
topic  still  await  positive  answers. 

In  the  eighteenth  century,  the  commcm  belief  was  that  men 
were  endowed  by  nature  with  the  same  mental  and  moral  gifts. 
"The  difference  between  the  most  dissimilar  characters,  between 
a  i)hiloso|)her  and  a  common  street  porter,  seems  to  aris(<  nut  so 
much  from  iiatnre,  as  from  haiiit,  custom,  education."  '  l{ous- 
seau  b(>lieveil  Unit  Willi  prn|)er  education  he  cuiild  shape  men's 
capacities  at  will ;  and  Robert  Owen  rested  his  optimistic  social 
experiments  on  the  belief  that,  given  favoring  conditions,  all 
men   would   prove  ei|uatiy   industrious  and   e(juaiiy   virtuous. 


'  Rii  uniil  A  luiu  Hiuitli ;    tt'tallh  »/  ,V.(/i.i(m,   llnok  I,  (  liiiptrr  II,  p.  17,  Can- 
IIKU'll  ptlitiou. 


DIFFERENCES  OF  WAGES 


131 


During  the  nineteenth  century  the  effect  of  biological  investi- 
gation, under  the  leadership  of  Darwin,  was  to  turn  opinion 
the  other  way.  It  laid  stress  on  the  inl)orn  differences  between 
individuals  of  the  same  species,  the  transmission  of  variations 
from  ancestor  to  descendant,  the  close  association  of  physical 
and  mental  traits.  A  possible  corollary  was  that  the  better 
position  of  the  more  favored  classes  resulted,  in  part  at  least, 
from  inborn  qualities  transmitted  from  generation  to  genera- 
tion. In  recent  yeais,  more  and  more  attention  has  been 
given  to  the  bearing  of  such  reasoning  upon  social  phenomena, 
with  th(>  result  that  no  positive  proof  or  disproof  has  been 
given  as  to  the  part  which  natural  endowment  plays  in  separat- 
ing social  classes. 

Some  differences  in  remuneration  and  in  consequent  social 
station  are  certainly  due  to  inborn  gifts.  Within  any  one 
grade  in  society,  still  more  certainly  within  any  one  profes- 
sion, some  individuals  have  excei)ti()nal  capacity  and  thereby 
gain  exceptional  rewards.  There  are  lawyers,  physicians, 
scholars,  poets,  inventors,  bu>iness  men,  whom  nature  cndow<'d 
with  rare  (jualities.  Education  may  aid  them,  environment 
may  hamper,  but  innate  capacity  proves  decisive.  The  iii- 
fluenci«  of  heredity  is  often  tracealtle;  yet  llie  di'gree  to  which 
a  given  talent  or  comliination  of  talents  is  (li'veloi)cd  seems 
subject  to  no  nscertainai)le  law.  The  fact  of  varying  endow- 
ment, whether  in  the  way  of  genius  or  of  higli  talent,  is  as  un- 
mistakeal)le  as  its  causes  are  inscrutable.  AikI  from  this  fact 
it  follows  that  so?iie  individuals  earn  more  than  others,  and 
that  some  differences  in  wages,  under  a  r(''gime  of  competition, 
are  inevitable, 

The  more  diHicuIt  (|uestion  is  wliether  there  are  broad  <lif- 
feuMiccs  in  ijifts  of  mind  and  character  among  tin-  several  social 
classes.  .More  particularly,  are  the  well-to-do  possessed,  on 
the  whole,  of  (lualities  nul  possessed  by  the  maiuial  lal)orers.' 
If  iMf,  «>>{.!...  in  ifii  l,;ii>l.;  fj,  the  \'erv  !u*  .'!n!!!!iizs  of  social  dilfer- 
ences,  we  should  d.>iil>tle-;s  find  that  those  who  first  swung 
theinH»>lves  into  favored  positions  did  .so  by  virtue  of  natural 


132 


THE  DISTRIBUTION  OF  WEALTH 


h 

I' 


If 
1 


gifts.  The  earliest  savage  chiefs  rose  to  command  because  of 
superior  strength  or  cunning.  The  feudal  lords  were  at  the 
outset  the  natural  leaders  of  the  clans.  The  city  merchants 
in  whom  we  find  the  origin  of  the  bourgeoisie  were  the  shrewd 
and  capable  men  of  their  towns.  The  analogies  of  heredity 
suggest  that  the  qualities  of  such  ancestors  were  transmitted 
to  their  descendants,  and  that  the  so-called  higher  classes  of 
modern  times  constitute  a  l)orn  aristocracy.  Though  heredity 
is  irregular  in  its  individual  manifestations,  for  large  numbers  it 
shows  regularity  and  persistence.  Take  a  thousand  children 
of  gifte<l  parents,  and  a  thousand  children  of  mediocre  parents  ; 
the  former  will  prove  a  superior  class,  even  though  a  sporadic 
genius  may  emerge  among  the  latter.  Can  it  not  be  inferred 
that  the  broad  differences  between  social  classes  rest  on  dif- 
ferences in  tlieir  inherent  intellectual  and  moral  endowments? 

Farther,  it  is  maintained  that  the  distribution  of  success  in 
life  proves  the  greater  average  gifts  of  the  higher  classes.  Sta- 
tistics concerning  the  notal)k'  men  of  several  countries  (especially 
England  and  France)  show  tliat  the  aristocracy,  the  well-to-do 
classes  and  the  town  ilwellers,  have  furnished  the  immense 
majority  of  the  men  of  mark,  —  the  writers,  statesmen,  soldiers, 
industrial  leaders.  In  proportion  to  their  numbers,  talent,  as 
indicated  by  achievement,  has  been  vastly  more  abundant. 
Even  genius  has  been  recruited  chiefly  from  their  raivks.  Sui^h 
evidence  is  adduced  as  strengthening  the  view  that  inborn 
gifts  vary  with  social  classes. 

On  the  other  hand,  it  is  contendetl  that  this  very  evidence 
shows  the  commanding  influence  of  opportunity  and  environ- 
ment. \\\y  one  of  intellectual  capacity  who  consorts  with  the 
average  jHTsons  of  tlie  "suiM'riitr"  class(>s,  and  ol)serves  their 
narrownesx,  their  dullness,  their  fatuous  self-content,  their 
ess(>ii!iiil  vulgarity,  must  liesitate  before  believing  tluit  they 
and  their  descendants  achieve  success  solely  because  of  un- 
U?ua!  gift-  'I'lscir  fnvnrcij  jnwifiiiti  •\w-i  !«'  ihw,  m  i.'irire  ine.'i-;- 
ure  at  least,  to  training,  advatitugeous  start,  fostering  environ- 
ment.    If  few  from  among  the  lower  cla.sses  rise,  it  must  It 


DIFFERENCES  OF  WAGES 


133 


because  of  the  repression  of  many  who  are  talented.  Only 
those  of  very  unusual  vigor  and  ability  can  escape  from  the 
trammels.  A  great  fund  of  capacity,  no  less  in  its  possibilities 
than  that  which  is  found  among  the  well-to-do,  is  believed  to 
remain  undeveloped.  Though  variations  between  individuals 
are  unmistakeablc,  variations  between  classes  are  declared  to 
be  unproved. 

To  this  it  is  added  that  any  higher  or  favored  class  tends 
not  so  much  to  transmit  to  descendants  the  qualities  by  which 
the  ancestors  achieved  success,  as  to  become  itself  enervated 
and  weakened  by  continuance  in  privilege.  The  later  genera- 
tions of  the  stock  deteriorate.  It  is  only  by  the  infusion  of 
fresh  blood  from  below  that  vitality  and  strength  are  pre- 
served. Such  is  said  to  be  the  lesson  of  history  as  to  royal  and 
noble  houses ;  such  is  perliaps  the  tendency  among  the  success- 
ful bourgeoisie.  When  the  conditions  of  life  are  made  easy,  and 
the  struggle  for  advancement  becomes  less  strenuous,  the  unfit 
are  no  longer  eliminated,  and  tlie  moderately  capable  are  en- 
abled to  hold  their  own.  Tliough  conspicuous  success  continues 
to  be  attained  only  by  those  of  unusual  ^UU  (wliether  born  in 
the  lower  classes  or  among  the  well-tonlo),  the  advantages  of 
an  easy  start  and  constant  support  still  enal)le  persons  of 
mediocre  quality  to  remain  in  the  favored  class  from  which 
they  sprang  and  to  maintain  their  favore<l  position. 

The  problem  is  unsolved,  and  is  lik(>Iy  long  to  remain  so. 
The  method  of  experiment  cannot  be  ai)plied  to  ''  a«  indeeil  it 
cannot  be,  in  an  accurat(>  way,  to  social  problems  of  any  sort. 
We  cannot  take  a  thousand  children  of  the  more  lavon  ,1  classes, 
and  another  tliousaiid  of  the  less  favore<l,  sulijcct  them  to 
precisely  the  same  iiifiueiicis  of  education  and  environment, 
and  wati'h  their  careers  through  life.  Still  less  can  we  <lo  .so 
with  successive  general  i.ms  of  their  deseendants.  The  method 
of  observation  alone  is  availal)le  ;  one  hampereil  not  only  tiy  the 
liniitutions  of  the  evidence  and  the  coninlevity  of  the  dala. 
Init  by  the  prejudices  of  those  who  conduct  the  ol)servatioi\s. 
Though  the  analogies  from  l)iolog.y  vniitie  r\perimeut  in  the  strict 


I 


134 


THE  DISTRIBUTION  OF  WEALTH 


I 


'  I: 


t. 


i) 


Ml 


,'  I 


sense  is  applicable)  strengthen  the  view  that  inheritance  is  all- 
pervading,  the  plain  facts  of  everyday  life  prove  that  oppor- 
tunity and  environment  are  of  signal  importance.  Those  of 
inborn  gifts  make  them  tell  with  immensely  greater  ease  if  they 
have  the  advantages  of  education  and  training,  and  of  support 
during  the  early  stages  of  their  career.  Those  of  the  very 
highest  gifts  are  doubtless  least  dependent  on  adventitious  aid. 
Generals  probably  are  born,  not  made.  But  colonels  and  cap- 
tains can  be  trained.  In  the  ranks  there  may  be  many  men 
who  have  it  in  them  to  become  good  officers,  yet  are  kept  in 
the  ranks  because  no  way  is  available  for  bringing  out  the 
sterling  qualities  which  they  possess. 

§  6.  At  all  events,  whether  from  natural  causes  or  as  tho 
result  of  existing  social  conditions,  the  movement  of  laborer 
from  grade  to  grade  is  not  free.  Amid  the  great  variety 
of  occupations  and  of  wages  which  in  fact  exists,  certain  broad 
groups  may  be  distinguishetl.  These  may  be  called,  in  the 
phrase  introduced  l)y  Cairnes,  nou-compoting  groups;  non- 
competing  in  the  sense  that  those  born  or  placed  in  a  given 
grade  or  group  usually  remain  there,  and  do  not  compete  with 
those  in  other  groups.  P^or  most  men  it  is  very  difficult,  for 
many  it  is  impossible,  to  move  from  the  group  in  which  they 
find  themselves  into  one  more  favored.  We  may  enumerate,  for 
simplicity  and  conveiiicnce  ol  exposition,  five;  such  groups. 
They  are  not  distinguished  l)y  sluir])  demarcation,  for  they 
shade  one  into  another  l)y  contiiuious  gradations;  but  they  are 
distinguished  sufficiently  to  bring  into  relief  some  important 
qitestions  as  to  the  relations  Ix'tween  social  classes  and  the 
fundamental  cauM's  acting  on  distribution  and  on  value. 

(1)  In  the  lowest  group  lu'iong  the  day  laborers,  so  called: 
th<>  diggers  aiul  ddvcrs  who  have  nothing  to  offer  but  their 
Itodily  strength.  No  doui)t,  !ini(»ng  these,  there  are  some 
gradations.  The  very  cajjacity  and  willingness  to  labor  con- 
tinuously, i-vt-n  at  tlit-  riiri]>!i-t  *afkr.,  through,  nine,  ten,  eleven 
hours  a  day,  are  not  possessed  by  all  men,  still  less  l)y  all  races, 
and  mark  something  beyond  the  (juite  unskilled  grade  of  com- 


DIFFERENCES  OF  WAGES 


135 


■J 


mon  labor.  But  labor  of  this  sort  is  common  enough.  Almost 
any  adult  is  able  to  do  the  work.  For  this  group,  even  in 
the  most  advanced  countries,  education  is  rarely  carried  beyond 
the  minimum  which  the  law  requires.  Children  are  set  to 
work  at  the  earliest  age  at  which  they  can  earn  something. 
The  maximum  wages  of  any  individual  are  earned  as  soon  as 
he  is  full  grown,  and  become  less  rather  than  greater  as 
middle  age  is  reached. 

In  the  same  group  belong  those  factory  employees  whose 
work  is  of  the  simplest  sort.  In  every  factory  there  is  a  cer- 
tain amount  of  "heavy  work"  to  be  done,  for  which  the  com- 
mon laborer  is  needed.  In  agriculture,  there  is  always  a  sharp 
demand  for  such  labor  at  harvest  time,  and  some  demand  for 
it  throughout  the  year ;  though  the  planning  and  direction  of 
farm  work  calls  for  much  more  than  simple  muscular  effort. 

(2)  In  the  next  group  belong  thosr  who,  while  not  needing 
specialized  skill,  yet  bear  some  resp()iisil)ility,  and  must  have 
some  alertness  of  mind.  Such,  for  example,  are  motormini  on 
the  street  railways.  Most  mimrs  belong  here,  certainly  in 
England  and  in  Germany.  In  the  United  States,  there  has 
indeed  been  a  tendency  (except  where  machinery  is  used  under 
ground)  to  put  coal  mining  it\to  tiie  hands  of  unskilled  workers. 
The  development  of  machinery  and  of  large-scale  establishments 
has  created  a  demand  for  an  innnense  number  of  factory 
workers  whose  tasks  are  comparatively  simple,  and  often  are 
desperately  monotonous,  but  who  yet  must  have  some  intelli- 
gence in  watching  and  ai)i)lyinK  machinery.  Wages  in  this 
group  are  commonly  paid  l)y  the  week,  not  by  the  day  ;  a  cir- 
cumstance marking  a  greater  continuity  of  employiiu'iit  which 
in  itself  constitutes  a  eonsiileral)le  advance  over  the  situation 
of  the  first  group. 

(3)  In  the  tliird  group  belong  the  aristocracy  of  the  manual 
laboring  class:  the  skilled  workmen.  Such  are  carpenters, 
bricklayers,  phimlMTs,  machinists;  the  wlu>le  r.inge  of  occu- 
pations where  th(>re  is  nee(l  for  a  sure  eye,  familiarity  with 
tools  a  deft  and  trained  hand.     Thouidi  machine  i)rocessos  have 


136 


THE  DISTRIBUTION   OF  WEALTH 


:  1        J' 

I  I 


,1^ 


ill 


R.t  ■ 

if 


II 


displaced  in  large  degree  the  handicrafts,  the  workman  skilled 
at  a  trade  is  still  in  many  directions  indispensable.  Further, 
the  development  of  machinery  has  itself  called  for  a  great 
class  of  workmen  capable  of  making,  repairing,  and  adapting 
machines.  Specialized  skill  at  a  particular  trade  may  be  less 
certain  to  command  as  high  a  reward  as  in  former  days,  because 
so  largely  threatened  by  competition  from  the  machines;  but 
general  mechanical  ability  is  in  constantly  growing  demand.  It 
is  among  workmen  who  possess  such  ability  that  trade  unions 
are  strongest.  Some  accumulation  of  property  is  possible,  by 
deposit  in  the  savings  banks  or  by  ownership  of  a  dwelling. 
Some  pride  in  the  occupation  is  developed,  and  a  strong  spirit 
of  independence.  Education,  too,  is  carried  further  than  in 
the  lower  classes.  The  children  are  usually  put  through  the 
entire  curriculum  of  the  elementary  (grammar)  school,  and  are 
prepared  by  apprenticeship  or  otherwise  for  a  particular  trade. 

(4)  Next  comes  the  group  that  approaches  the  well-to-do; 
the  lower  middle  class,  which  avoids  rough  and  dirty  work,  and 
aims  at  some  sort  of  clerical  or  semi-intellectual  occupation. 
Here  are  clerks,  bookkeepers,  salesmen,  small  tradesmen,  rail- 
way conductors,  foremen,  superintendents,  teachers  of  the 
lover  grades.  Education  in  this  group  is  carried  further ;  for 
parents  are  more  ready  and  better  able  to  support  children 
through  a  long  period.  The  secondary  scImwI  (high  school  or 
academy)  is  usually  entered,  and  very  often  attended  through 
its  entire  course.  Marriage  takes  j^lace  at  a  somc'what  later 
age ;  and  some  endeavor  at  saving  or  accunmlation  is  almost 
always  made.  There  is  commonly  a  feeling  of  contempt  for  th<> 
manual  lai)orers  of  all  sorts,  whether  skilled  or  unskilled,  and  a 
demarcation  of  social  feeling  that  does  not  correspond  to  dif- 
ferences ill  wages;  for  the  rate  of  pay  in  this  fourth  class  is, 
in  modern  communities,  often  little  different  from  that  in  the 
third  class. 

(5)  Finally,  we  reach  the  class  of  the  well-to-«lo ;  those  who 
regard  themselves  as  the  highest  class,  and  certainly  are  the 
most  favored  class.     Here  are  the  professions,  so-called,  —  the 


DIFFERENCES   OF  WAGES 


137 


^ 


lawyers,  physicians,  clergymen ;  teachers  of  the  higher  grades ; 
salaried  officials,  pul)lic  and  private,  in  positions  of  rosijonsihilitj^ 
and  power;  not  least,  the  class  of  business  men  and  managers 
of  industry,  who  form  in  democratic  conununities  the  backbone 
of  the  whole  group.  The  associations  are  with  property  and 
accumulation,  and  the  common  aim  is  not  nuTcly  to  procure  a 
suitable  support,  but  to  save  money  or  to  make  money.  Edu- 
cation is  carried  to  the  highest  level,  commonly  through  the 
secondary  school,  often  through  the  college  or  university.  Earn- 
ing power  does  not  begin  early.  Not  only  is  there  a  long  period 
of  training  and  education,  but  an  additional  stage  of  slow  start 
and  slender  beginnings;  while  an  increase  of  earning  power 
through  life,  or  at  least  through  middle  age,  is  confidently  ex- 
pected. Marriage  is  delayed  until  late,  —  often  too  late  for 
full  happiness.  The  wives  are  largely  ornamental ;  they  are 
not  expected  to  do  household  work,  or  even  to  undertake  the 
full  care  of  their  children,  but  are  given  the  aid  of  servants. 

The  first  three  groups,  including  the  manual  Ialx)rers  of  all 
kinds,  constitute  a  class  by  themselves,  not  only  because  the 
gradations  of  wages  are  continuous,  but  Ijecause  their  members 
have  the  same  point  of  view  and  the  same  prejudices.  They 
expect  usually  to  live  on  their  wages,  not  looking  ♦^o  the  accu- 
mulation  of  property  or  to  an  income  derived  from  property. 
There  is  a  common  sense  of  dependence  on  manual  labor,  and  a 
common  sense  of  separation  from  the  w(>ll-to-tlo  and  possessing 
classes.  The  last  two  groups  have  similar  feelings  of  solidarity. 
Even  though  there  are  great  variations  in  jwssessions  and 
income  innong  liicm,  they  all  have  tlie  habits  and  hopes  and 
prejudices  of  th(>  well-to-do.  They  share  a  feeling  that  manual 
labor  is  beneath  them,  and  their  garb  indicates  their  freedom 
from  it,  —  no  jumpers  or  overalls.  Their  hope  i.--  for  accumu- 
lation and  investmi'ut,  and  their  ainl)iti()n  is  primarily  for 
swinging  themselves  into  the  position  (if  the  leisure  class. 
Business  —  that  is,  the  management  ami  direction  of  industry, 
and  work  that  is  close  to  such  ni'ina^ement  —  is  the  core  of 
their  doMigs.     We  may  thus  divide  the  wurkers  into  the  two 


138 


THE    JlST^IiUTIOX   OF    TEaL: 


''I 


great  classes  of  tiie  soft  handed  ana  iht  aard  iianded.  Those 
who  do  not  labor  at  all,  -  the  owi-rs  o!  property  yielding  in- 
come,—  belong  ill  the  strict  econuinii-  sense  in  a  gi>'Up  by 
themselves :  their  income  is  not  wages  of  any  sort,  but  interest 
or  rent  or  monopoly  gain.  But  in  a  larger  sense,  they  are  in 
the  same  class  as  the  upper  groups  of  the  wage-earners,  and 
especially  with  the  highest  and  most  favored  group,  sharing 
the  same  traditions,  aiul,  not  least,  intermarrying  with  the 
members  of  that  group. 

§  7.  In  modern  times  and  especially  in  democratic  com- 
munities, the  barriers  which  separate  the  groups  tend  to  be 
broken  down,  and  passage  from  one  to  another  becomes  more 
easy.  We  may  consider  first  how  those  changes  affect  the 
lowest  group,  that  of  common  laborers. 

There  always  has  been,  and  there  always  will  be,  much  hard, 
dirty,  conmion  work  to  do ;  and  there  always  has  been,  and 
always  will  be,  a  desire  on  the  part  of  the  powerful  or  favored 
social  class(>s  to  get  others  to  do  this  work  for  them.  Hence 
slavery  in  ancient  times,  and  serfdom  in  the  Middle  Ages.  In 
modern  times,  we  have  negro  slavery,  Chinese  and  coolie  labor, 
unskilled  connnon  labor.  For  such  there  is  an  insistent  demand, 
for  building  railways,  digging  sewers,  handling  the  crops,  delving 
in  the  mines,  —  all  the  tasks  for  which  simple  muscular  energy 
is  needed.  H<Te  are  thr^  helots  of  scjciety.  As  to  them,  it  is 
far  from  being  true  that  unattractiveness  iti  an  occupation 
causes  wages  to  be  high.  The  reverse  is  more  i\early  true. 
The  hardest,  dirtiest,  least  attractive  work  gets  the  lowest  pay. 
Evidently,  in  a  free  society,  the  exi)lanation  of  the  low 
wages  of  this  group  must  be  that  there  are  very  many  persons 
who  can  do  such  work  and  can  do  no  ottier.  Their  otTcT  of 
abundant  labor  forces  wages  down,  and  they  are  prevented 
from  making  tluir  way  to  the  more  favored  groups  by  the 
obstacles  of  eiiviroumeiit  and  lack  of  training,  or  by  deficiency 
ol  inborn  qualiti(>s.  So  tar  iis  tiicse  oi)stacles  are  absent  ir  are 
weakened,  there  will  in'  a  constant  endeavor  to  get  out  of  the 
lowest  group;  lience  a  constant  seepage  into  the  groups  above, 


DIFFERENCES  OF  WAGES 


'9 


and  a  tendency  toward  equalization  of  wages.  This  move- 
ment for  escape  from  the  lowest  group  is  strong  in  the  United 
States.  Ail  the  influences  of  a  democratic  society  —  the  al> 
sence  of  rigid  class  distinctions,  the  atmosphere  of  freedom,  the 
education  of  the  public  schools  —  tentl  to  break  down  the  bar- 
riers between  groups.  The  position  of  common  laborers  in  the 
United  States  (that  is,  in  the  Northern  and  Western  states)  has 
been  kept  at  its  low  level  only  by  the  contiiuied  inflow  of  immi- 
grants. Those  of  the  second  generation  among  th(^  foreign- 
born  usually  swing  themselves  into  the  second  and  third  grouiw. 
Th^'  public  schools,  both  by  the  direct  effect  of  tlu'ir  training 
and  (still  more)  by  their  indirect  effect  in  breaking  the  thralls 
of  environment,  open  the  way  to  somethinu  better.  But 
during  half  a  century  and  more,  ever  fnsh  streanis  of  immi- 
grants have  brought  new  suppliers  of  common  lal^orers,  taking 
the  places  left  vacant  as  the  children  of  their  predecessors  have 
made  their  way  into  the  higher  groups.  First  cami;  the  Irish, 
whose  great  movement  set  in  after  the  Irish  famine  of  1846; 
then  the  French  Canadians ;  latterly  the  Italians,  Himga- 
rians,  Poles,  and  the  varied  races  of  eastern  iMirope.  These 
constant  new  arrivals  have  kept  down  the  wages  of  the  lowest 
group,  and  have  accentuated  also  the  lines  of  social  demarca- 
tion between  this  group  and  others. 

A  rate  of  pay  for  common  laliorers  much  lower  than  that 
for  other  laborers  is  assumed  by  most  peopl(>  to  be  part  of  the 
order  of  nature.  But  it  is  by  no  means  a  :natt(>r  of  course ; 
and  it  is  very  much  a  matter  for  regn^t.  Kn>edom  in  the 
choice  of  occupations  is  one  of  the  most  important  conditions 
of  happiness,  and  the  trtulitionnl  position  of  common  lal)or  is 
due  to  the  absence  of  sucii  frcM-dom.  The  disparities  in  (>arn- 
ings  and  in  social  position  of  which  this  is  the  most  glaring 
are  not  consistent  with  the  ideals  that  are  dominating  the 
civilized  world.  They  are  most  of  all  inconsistent  with  the 
aspirations  of  deivioi  i;ev.  It  i>  inuiiiible  liiai,  escn  wiili  lin- 
removal  of  ail  artilicial  l)arriers  to  free  movemiMit,  common 
labor  would  still  remain,  as  its  present  name  implies,  the  most 


ta 
™ 


i^ 


V  I 


I 


140  THE  DISTRIBUTION  OF  WEALTH 

common  and  the  least  paid.  But  such  great  discrepancies  as 
the  world  has  hitherto  accepted  as  a  matter  of  course  are  not 
inevitable.  They  briuR  grave  social  dangers,  in  the  intensifi- 
cation of  class  prejudices  and  class  struggles.  They  bnng  a 
false  attitude  in  the  rest  of  the  community  toward  all  manual 
labor,  -  an  unworthy  contempt  for  indispensable  work.  An 
olevation  of  this  group  to  a  plane  of  higher  pay  and  better 
social  reganl  would  indeed  mean  that  other  groups  would  be 
relatively  worse  off,  -  they  woulil  no  longer  secure  the  fruits 
of  hard  labor  on  cheap  terms ;  but  it  would  mean  a  tetter  dis- 
tribution of  happiness. 

It  is  on  grounds  of  this  sort  that  the  exclusion  of  (Chinese 
from  the  United  States  is  to  In-  justified.     Such  lal)or  as  theirs 
was  nnich  "needed"  on  the  Pacific  Coast  in  earlier  days, — 
"neede<r'  in  the  sense  that  there  wen-  very  few  who  could  be 
got  to  do  it  for  the  wages  deemed  b>  tr    lition  adecpiate  for  the 
work.     On  strictly  economic  grounds  it  was  advantageous  to 
the  rest  of  the  community.     Hut  a  iH«rmane      -roup  of  helots 
is  not  a  healthy  constituent  of  a  democratic  .-.ciety.     It  is  on 
the  same  groumis  that  the  j«)sition  of  the  negro  in  the  Sou     em 
states  is  matter  for  grave  anxiety.     His  in.lefinite  continuance 
as  a  semi-servile  laborer  is  not  consistent   witli   high  social 
ideals ;   yet  his  freedom  to  move  (so  far  as  his  innate  qualities 
p«>rmit)  into  better  condititms  !•<  n'sisted  not  only  by  the  wlfish- 
ness of  otlier  groups,  but  by  all  the  strength  of  bitter  race  preju- 
dice.    'Hie  question  of  the  restriction  of  immigration  into  the 
I'nited  States  is  to  be  decided  .lilrlly,  in  my  judgment,  from 
this  same  point  of  view.     If  immigrati(.n  means  the  ix-rpetua- 
tion  of  a  low  economic  and   social    stratum,  it  should  be  re- 
stricted,    Hut  if  those  wh(»  •'..me  in  are  transformed  in  tlue 
li,„r  -   their  children,  if  not  tliemselves    ~  into  free  and  mobile 
inemlMTs  of  the  community,  the  country  may  accept  them 
with  little  misgiving.     The    immigrants    th<«mselve«  certainly 
gain  from  ilir  very  i«  nihiiinK,  by  findit-.K  !« ttt  r  n>ndi«!="\=*  i»d 
iM'tter  pay  than  in  their  native  c«nmtries .    they  do  hanl  work 
on  cheap  terms  for  the  rest  of  the  n.mmunity ;  and  their  stag- 


DIFFERENCES  OF  WAGE3 


141 


nation  ia  the  lowest  group  may  be  condoned  if  it  is  but  a  tem- 
porary stage. 

The  spread  of  education  and  the  breaking  of  the  shackles  of 
environment,  which  make  it  easier  for  the  lowest  group  to  rise, 
have  had  their  effects  on  the  relations  of  other  groups  also. 
Clerks,  salesmen,  and  the  like,  were  formerly  shielded  in  some 
measure  from  competition,   and  so  maintained  in  a  favorecl 
position,  by  the  difficulty  of  getting  the  l)ook  leurning  (simple 
though  it  may  Im")  which  their  calling  requires.    The  public  school, 
and  especially  the  public  high  school,  have  changed  all  this. 
There  is  a  plethora  of  persons  qualified  to  do  such  work,  and  a 
consequent  t<'ndency  for  their  wages  to  fall  rather  than  to  rise. 
The  earnings  of  a  good  mechanic  are  in  the  United  States 
higher  than  those  of  tlu'  average  clerk.     None  the  less,  the  re.sort 
to  the  clerk's  trade  .shows  no  sign  of  abating.     This  is  due  in 
goo<l  part  to  its  associatiorx  with  the  management  of  business, 
and  to  the  jHjssibility  of  advancement  to  a  post  of  command,    - 
the  alluring  though  de«'cptive  chance  of  a  prize.     Hut  it  is  due 
chiefly  to  a  traditional  contempt  for  manual  lalM)r.     The  ex- 
ternals of  the  leisure  classes  are  ap<*(l.     Tins  conventional  and 
irrational  feeling  against  "dirty  work"  is  imleed  likely  to  give 
way  as  the    {wcuniary  advantage  of    the   inedumics'    group 
l)ecome8  more  pronounced  and  inor*'  familiar.     In  time,  people 
adjust  thei-  notions  of  social   superiority   to  earnings.     .\ny 
occupation  that  pays  well  is  likely  in  the  enil  to  be  respected, 
just  as  any  person  (or  family)  haviuK  a  sullieieiil   foitunt!  is 
likely  in  the  end  to  l>e  aect   .ted  by  the  so-called  I'pper  classt  s. 
Hut   such   changes   in   the   eonvenlionid   hierarchy   of   society 
take  place  but  slowly       The  esteem  in  which  an  oceupaUoii  is 
for  the  tinu'  iM'ing  held  is  a  powerful  part  of  il^  attnicrHei- ; 
an«l  tlie  more  open  is  compelition.  tin-  more  will  people  move 
into    those   (tccupations    which    are    supposed    to    lnuiK    soci.ii 
8Ui)'.'riority. 

{  8.  What  would  be  the  differences  in  waijes,  and  to  tiow 
great  an  extent  would  uroups  and  classes  jM-rsist,  if  all  had  tiir 
name  opiwrt unities,  arid  if  choice  of  oc<upalioii  were  in  so  far 


142 


THE  DISTRIBUTION  OF  WEALTH 


W     i    ! 


'    ir 


It 


perfectly  free?  Would  wages  then  differ  only  bo  far  as  they 
miRht  be  affected  by  attractiveness,  risk,  and  other  causes  of 
equalizing  variations?  Would  coarse  manual  labor,  for  in- 
stance, then  receive  a  reward  nearly  as  higli  as  any  other  lalwr, 
nay  conceivably  (since  the  work  is  dirty  and  disagreeable) 
higher  than  any  other?  Would  the  soft-handed  o(!Cupation8 
lose  entirely  the  advantage  in  pay  which  they  now  commonly 

have  ? 

The  answer  must  depend  on  our  view  as  to  the  limitation  of 
natural  abilities.  It  is  ilear  that  some  gift<'d  individuals,— 
a  few  men  of  scienct*  and  letters,  inventors  and  engineers, 
business  men  and  lawyers,  physicians  and  surgeons,— would 
tower  alx)ve  their  fellows,  and  would  t)btain,  in  a  competitive 
society,  imtisual  rewards.  But  would  physicians  as  a  class 
secure  lugher  rewards  than  mechanics  as  a  class?  They  would 
do  BO  only  if  the  faculties  which  a  cai)al)le  physician  must  possess 
are  found  among  immkind  in  limited  th-gree.  And  mechanics, 
in  turn,  would  receivf-  wages  liiglier  than  those  of  day  lalK)rer8 
only  if  it  proved  that  but  a  limited  numlnT  iM)sse8sed  the 
qualities  needed.  On  this  crucial  point,  to  repeat,  we  are 
unable  to  pronounce  with  certainty.  What  are  the  relative 
effects  of  nature  and  of  nurture  i..  bringing  alnnit  the  phenomena 
of  social  stratification,  w««  cannot  say. 

One  thing,  howj-ver,  is  clear :  it  is  much  to  Im'  desired  that 
this  fundamental  (luestioti  Im*  put  to  the  test.  The  removal 
of  all  artificial  barriers  to  choice  of  occupation  is  the  most 
importaut  goal  f<»r  society,  (liven  this,  the  innate  fiic\ilties  of 
all  will  l)e  brought  t.»  Iwiir,  and  all  will  bring  to  the  social 
dividend  whatever  it  'sin  them  to  contrilnite  ;  while  at  the  same 
time  the  most  |)erfect  freedom  will  Im>  secured,  and  thereby 
probably  the  most  even  d  stributiou  of  liappiness. 

i  9,  The  vagex  of  women  are  lower,  as  a  rule,  than  those 
of  men.     This  is  due  to  u  variety  of  causes. 

Partly  it  i-i  dui-  to  titeir  lower  phvsieui  ^.trength  and  Icrs 
general  efKiiency.  They  an-  in  many  sorts  of  work  less  pro- 
.luctive  than  men,  and  tlun-fore  paitl  less  highly.  — an  instance 


DIFFERENCES  OF  WAGES 


143 


of  inevitable  differences  in  wages,  such  as  would  persist  even 
if  choice  of  occupations  were  entirely  free.' 

In  some  degree,  choice  jf  oc(;upati()ns  is  not  entirely  fri-e 
for  women.  Custom  and  lack  uf  training  long  liav»!  shut 
them  out  from  some  occupations.  But  in  miKlcrn  times,  and 
especially  in  a  country  like  the  United  States,  obstacles  of  this 
sort  are  becoming  steadily  less,  and  probably  have  no  lonyicr 
any  far-reaching  effect.  Education  for  women  is  widespread 
and  accessible,  and  tradition  does  not  stand  ol)stinately  in  their 
way  for  any  occupation  for  which  they  are  really  qualified. 
Some  women,  indeed,  may  be  said  to  be  in  a  non-competing 
group,  having  an  unfortunate  place  within  the  occupations  of 
their  own  sex.  Such  are  needlewomen,  al»ie  to  do  this  faniiliar 
work  of  their  sex  and  unabl*'  to  do  anything  else.  Not  so  very 
long  ago,  such  work  held  the  same  place  for  women  that  com- 
mon day  lalwr  does  for  men.  It  was  the  one  thing  »!very 
woman  could  do,  and  the  otdy  thing  that  most  women  could 
turn  to  when  they  had  to  earn  their  living.  Hut  the  range  of 
available  occupations  has  greatly  wideiifd  during  the  la.st 
generation  or  two,  and  there  is  less  oongt-<tion  of  work-swking 
women  in  any  one  cortier. 

Most  important  of  all,  in  the  modern  competition  of  women 
for  work,  is  the  circumstance  that  as  a  rule  tlu-y  have  to  sup- 
port themselves  only,  and  often  not  even  that.  .Most  wom(>n 
employ«'d  in  factories  or  shops  are  at  work  for  but  a  limited 
time,  looking  forward  t'>  marrij^Te.  They  live  in  their  homes, 
and  their  earnings  are  part  of  the  fivtnily  earnings.  They  are 
"subdidijsed."  Not  a  few  married  women  are  subsidizeti  in  the 
■ame  wnse  ;  they  earn  extra  {>eimies.     For  a  ma»»,  w.i'^es  must 

'  Te>  fltp  onp  ift>ni  "(  r)i  ipiii'frrUti^'  ti<tinvuiv  ■  hmioiiu  iIp'  •<liirl-Hni«i  worki'M 

of  .New  Yorii  "tlin  ti'sliiiuiiiy  "f  IhiIIi  .•miiloycra  hiuI  ■•miiloyi  ■  »  w:i«  iiiiiuiiiiiixu 

fhFi»  tf  n  nmn  Btut  n  wcmiiili,  wli'>  Iim.I  wmkcil  tln'  ^iiiiii-  riiimUi  ..f  vinr^iil  lli-- 

trmlf.mit  "id'-  l>v  i>iil<' nt  thi'  »iiiiii  nmi'liiiic-x.  iind  liivl  l»'rii  \<.\u\  |.r'  ■i-..  I\  tl\i»iiiiif 

rntp  p<'r  pii'd-.  flic  nmn  wmilil  rnrti  HiivwhiTi-  friun  -'.1  to  7'>  p  r  rmt  tunr.'  then 

111  •  wiiiimn      Till'  r»|il»natiimi>  wire  llml  i\  mini  wcrV-.l  (mhIit.  w»i  •Iping-'r 
i  .......  .   .._    _^    ^i_  . 

miti    in'irr  i-|i'I)iritiii  ,     Uitit    Wftiu-ii  r.tHi'iit'I   >h*  Ifi-     i-i.-T..  r    ;.:;rT^  ::r    :r.  ■  r.-Tr.  , 

thm  n  mat.  w..rk«  Imrdi-r  ;iniJ  fintrr  niid  l>>tiii<r  Ih.  mi*-  h.'  \i<\f  »••   lu-  i  fiwiiilv 

to  supjHirt,  '  wliilo  H  Kirl  H  only  wurliiiKi  until  ulii*  g'li'  ninrrutl.'  "     .\li    \\ik"1« 

HutchlMou  Itt  Tht  Sunry.  Jnnusry  .'.'.  MUll. 


144 


THE  DISTRIBUTION  OF  WEALTH 


i; 


normally  be  enough  to  enable  a  family  to  be  supported  and 
reared.  The  great  majority  of  working  women  are  not  in  this 
case.  Hence  they  are  willing  to  work  for  wages  less  than 
would  suffice  to  maintain  a  family ;  and  there  being  many  of 
them,  they  must  offer  their  services  on  terms  that  wil!  secure 
the  employment  of  all.  Some  among  them,  it  is  true,  do  have 
to  support  a  family,  —  widows,  elder  sisters,  and  the  like; 
and  these  must  accept  the  same  wages  as  the  rest.  Conversely, 
among  men,  bachelor.-*  get  the  same  wages  as  fathers  of  families. 
Such  disparities  between  needs  and  earnings  are  the  inevitable 
outcome  of  competitive  industry. 

Since  women  work  for  lower  wages  than  men,  it  might  bo 
expected  that  they  would  displace  the  men  wh«>rever  they 
could  do  the  work.  So  far  as  the  women  are  really  as  efficient 
as  men,  thi.s  result  ensues ;  in  such  occupations,  for  example, 
as  typewriting,  stenographing,  light  factory  work,  much  selling 
over  the  counter  in  retail  shops.  The  men  who  formerly  did 
this  work  must  find  something  else  to  do ;  and  though  the  shift 
is  not  often  easy  or  (juick,  it  usually  takes  place  in  the  end 
without  serious  loss.  Sometimes,  however,  while  women  dis- 
place men  in  part,  they  cannot  do  so  entirely.  A  certain  pro- 
IK)rtion  of  nu>n  must  often  Ix"  inaintaine<l.  Thus  in  the  com- 
posing room  of  printing  establishments,  women  can  do  much 
of  the  work  as  well  as  the  men ;  they  can  o|)erate  some  of  the 
typesetting  nmrhines  as  well,  and  can  set  most  tyjx'  as  well. 
But  for  the  heavier  or  more  exacting  work,  men  must  Ik*  kept, 
and  tht-y  then  are  <<mpl(iy»'d  sitle  by  side  with  the  women.  The 
situation  is  .similar  in  the  public  high  st'h(M)ls.  Most  higii  school 
teaching  is  done,  at  least  in  the  I'nited  States,  l)y  women. 
Hut  some  men  there  luuxt  lie,  if  only  for  the  better  maintenance 
of  iliseipline  ;  iind  indeed  the  juster  opinion  is  that  secondary 
ediicatioi)  would  l>e  nnieli  improve!  if  l)\e  iiroportion  of  men 
were  greatei"  Wiicii  men  and  woi^i'ii  thus  work  side  by  side, 
dt.'iiig  iijiparrntly  tlie  "iinie  wc-rk.  thr-y  yr'  rr-reiv?'  difTerr-nt 
wagch,  The  M|MMious  cry  of  "e<|ual  pay  for  (hjumI  work"  is 
sometimes  raise<l  in  xuch  cases;  though  in  fact  the  work  is  not 


DIFFERENCES  OF  WAGES 


145 


equal,  for  the  men  could  not  be  completely  replaced  by  women 
without  loss  in  efficiency.  Where  work  (that  is,  efficiency)  is 
in  fact  equal,  the  action  of  competition  will  in  the  end  make 
pay  equal,  —  equal  at  the  lower  level,  if  enough  capable  women 
can  be  found,  and  equal  at  the  higher  level  if  men  must  still  be 
enlisted.  This,  we  say,  will  be  the  outcome  in  the  end.  But, 
as  in  all  such  adjustments,  there  may  be  a  period  of  transition 
and  experiment,  during  which  the  practises  of  industry  have 
not  yet  accommodated  themselves  to  the  forces  of  competition ; 
and  during  such  a  period  the  tradition  that  women's  wages  are 
lower  than  men's  doubtless  has  its  effects  on  relative  wages. 

The  employment  of  umnarried  women  is  in  the  main  a  gain 
for  society  and  a  gain  for  the  women.  This  is  even  more 
true  of  women  from  the  woll-to-<lo  cla.sses  than  of  tlu>ir  poorer 
sisters.  It  is  better  that  they  should  l)e  at  work,  rather  than 
idling,  during  the  ixTiml  when  they  are  looking  forward  to 
marriage;  and  what  they  produce, even  though  it  be  not  turned 
out  vitli  great  efficiency  or  for  wages  us  higli  as  they  would 
like,  adds  to  the  social  income  lis  well  as  tiu-ir  own  income. 
Their  being  at  work  is  often  oi)|X)sed  by  the  men,  and  by  some 
well-meaning  reformers,  on  the  ground  that  it  takes  the  i)read 
away  from  some  one  else,  —  a  pha.se  of  tin*  pervasiv*'  fallacious 
notion  that  the  community  is  worst>  olT  if  its  lalM)r  force  is 
utilized  to  the  utmost.'  What  is  true  of  woinrn  awaiting 
marriiige  is  even  more  true  of  women  who  do  not  marry  at  all ; 
their  own  happiness  as  well  as  their  usefulness  in  society  is 
immenwiy  promoted  if  they  liav«'  stat<'d  work,  paid  for  at  its 
market  value. 

But  women's  work,  and  especially  the  work  of  young  un- 
mairied  women,  tnust  be  safeguarded  in  such  way  as  to  coii- 
WTVe  health  and  character,  There  slutuld  be  striiit^n-iit  regula- 
tion as  to  the  permissible  age,  the  hours  of  work,  ventilation 
and  sanitation  in  workshops.  No  utilization  of  |)rodiietive 
fiiiten  ran  be  more  waNieful  than  'hut  whicii  impa  rs  (he  rnorai 
or  ImmUIv  soumhiesN  of  future  mothers.     The  circumstance  th  it 


y 


I  ,S4'«'  Im'I.iw,  Chapli-r  ftl,  |  I 


VOL,,  II 


146 


THE  DISTRIBUTION  OF  WEALTH 


llJ) 


■<  ! 


'  I,  : 
I  i 


they  are  usually  poor  bargainors  —  partly  for  the  very  reason 
that  they  are  at  their  tasks  temporarily  ~  renders  them  liable 
to  exploitation,  ami  makes  legislative  regulation  of  their  labor 
the  more  imperative. 

The  employment  of  married  women  or  widows,  having  minor 
children,  is  almost  always  bad.  What  it  adds  to  social  income 
is  much  more  than  offset  by  the  social  loss  from  unkempt 
homes  and  from  lack  of  care  for  the  young.  It  must  be  regarded, 
where  necessary,  as  one  of  the  harsh  necessities  of  an  indi- 
vidualistic society.  Some  charitable  organizations  have  adopted 
the  policy  of  delil)erately  paying  penniless  widows,  not  for  work 
outside  the  home,  but  for  staying  at  home  and  caring  properly 
for  their  families.  It  is  under  consideration  in  Germany  that 
the  great  system  of  workmen's  insurance,  which  now  provides 
for  the  contingencies  of  sickness,  accident,  infirmity,  and 
oM  age,'  shall  l)e  extended  to  provide  for  widowhood  also. 
Through  some  such  measures  there  may  be  found  a  way  of 
mitigating  this  bitter  hardship. 

>5lco  below,  Book  VI.  Chapter  68. 


'I, 


* 


Lii\'( 


CHAPTER  48 


Wages  and  Value 


§  1.  In  the  present  'haptcr  we  return  to  the  theory  of  value, 
and  its  connection  with  llie  theory  of  distrihution.  So  close  is 
tliat  connection  that  the  two  subjects  iniKlit  be  properly  treated 
as  one.  It  is  chielly  for  convenience  and  clearness  in  expo- 
sition that  they  have  been  sefjarated  in  this  book. 

Ivet  the  reader  recall  the  distinction  imlicatetl  by  the  phrases 
"cost  of  pHKluction"  and  "ex])enses  of  production."'  By  ex- 
I^nses  of  production  we  mean  the  outlays  that  must  bo  made  to 
bring  a  coinin(Klity  to  market,  —  what  must  be  paid  for  waRcs, 
materials,  and  the  like.  Since  the  materials  themselves  are 
made  by  lat)or,  and  the  outlays  of  capitalists  are  resolvable  into 
a  succession  of  advances  to  laborers,  «'xpenscs  of  production  in 
the  end  are  simply  waiirs.-  Hy  cost  of  production  we  mean 
efforts  ami  sacrifices  -  nuiinly  labor.  The  distinction  i)etween 
exiM'n.seH  and  cost  In'tween  wajjes  and  lalM)r  is  an  ottvious 
one  and  an  imp«irtunt  one,  though  iiifortunatcly  not  indicated 
by  any  welU'stalilished  phraseology.  In  everyday  lanmiane 
|>eople  mean  by  "cost"  employer's  outlays;  and  this  current 
usage  was  accepted  in  most  of  what  has  preceded.  In  what  is 
to  follow,  it  will  be  helpful  to  keep  these  two  notions  di-tinct, 
and  "cost "  will  be  uxtd  in  the  sense  of  labor  or  effort. 

If  com|)etition  between  liilMirers  were  pi-rfi-ctly  fn-c,  if 
th«Te  were  no  uonH-ompetiii!!;  group",-  expense'*  of  production, 
so  far  ;c<  they  consisted  of  wage»i,  would  perfectly  mci^uri' 
cost  or  elTort.  There  could  then  l)e  no  dilTereiices  of  w.eie-, 
i-.\Crpt  .-wrii  as  srrVrd  io  r(jUa!l<:r  iiic  att raitiVriirr.-i  ul  iiiilrniit 

'  8«T  .(.iHiiiilly  lliHik  II.  (Ii.iiitir  l:',  I  I. 

'  ''»iii|mn'  HiMik  I,  Cliui)!!  r  5,  1 1> :  uniJ  ll'ink  V.  rii;i|iti  r  Ms.  t  •'<. 

117 


148 


THE  DISTRIBUTION  OF  WEALTH 


n 


employments.  Higher  wages  in  any  one  occupation  would 
then  signify  that  the  work  in  it  was  harder,  more  disagreeable, 
in  less  esteem ;  in  other  words,  that  it  involved  greater  effort 
or  irksomencss,  that  is,  greater  cost. 

Under  such  a  supposition,  it  would  be  possible  to  maintain 
a  labor  theory  of  value  :  that  the  value  of  commodities  measured 
or  embodiiHl  the  labor  given  to  producing  them.  Higher  value 
would  be  the  result  of  more  outlay  in  wages,  and  more  outlay 
in  wages  would  mean  either  more  lalx)r  or  lal)or  of  a  more  irk- 
some kind  ;  that  is,  higher  cost.  This  conclusion  would  assume 
also,  to  be  sure,  that  competition  among  capitaUsts  was  free, 
and  that  all  capitalists'  outlays  in  the  way  of  wages  were 
weighted,  or  addeil  to,  in  the  same  proportion,  in  order  to 
yield  a  return  on  those  outlays  in  the  form  of  interest.  As 
this  weighting,  or  addition  for  interest,  would  affect  all  com- 
modities equally,  value,  being  only  the  expression  of  a  relation, 
would  not  be  affected  by  it '  For  the  validity  of  this  conclu- 
sion, it  nmst  further  be  assumed  that  temporary  fluctuations,  or 
"market  values,"  may  be  disregarded.  With  free  competition 
both  of  lalxjr  and  of  capital,  supply  would  be  so  adjusted  in  the 
li)i\g  run  that  no  one  set  of  lalK)rers  or  of  capitalists  would  secure 
higher  rewards  than  any  other  set.  Supply  l)eing  so  adjusted, 
value  would  be  regulated  fundamentally  by  quantity  of  labor, 
or  by  cost. 

§  2.  In  fact,  however,  as  we  have  seen,  the  movement  of 
lalmr  is  not  free.  IxM)king  to  this  circumstance  alone,  and 
disregarding  for  the  moment  the  same  possibility  as  to  capi- 
tal, -  that  is,  assuming  capital  to  compete  freely,  — -  let  us 
consider  how  valu(>  would  be  adjusteil.  Suppose  a  non-com- 
peting group  of  workmen  which  comprises  a  single  trade,  say 
glass  bl(»W(>rs :  wliat  will  determine  th(>  value  of  the  commodi- 
ties mudc  by  them? 

The  answer  is  simple:    nmrgiival  utility.     That  will  deter- 

I  Tho  r  nilrr  coiivoniaiit  with  tti"  hiRtory  of  orimomii-  thoiiy  iiwJ  Hot  be  ro- 
mindwJ  of  thc<  ciuulificiitioii  of  tli  -.  propiwitioii  wliich  wiw  bo  miirli  clw.ll  on  by 
Ricardo  anil  hi*  f(>ll«iwnr!i.  Si-r  Hi.vml.),  PMHicnl  Econumy,  ('hnptrr  1 ;  J.  8. 
Mill,  PnlUiail  Economy,  ntM)k  111.  ( "hHptor  IV. 


WAGES  AND  VALUE 


149 


mine  both  the  wages  of  the  glass  blowers  and  the  selling  price 
of  the  window  glass  and  other  articles  made  by  them.  The 
quantity  of  such  articles  put  on  the  market  would  be  limited 
by  the  number  of  workmen  in  this  group.  As  the  capitalists 
compete  among  themselves  (by  supposition),  they  bid  for  the 
services  of  this  particular  group  of  laborers  until  nothing  is  left 
to  themselves  but  ordinary  interest.  A  current  high  rate  of 
wages  for  such  lalmrers  will  establish  itself.  Every  capitalist 
will  regard  his  outlay  for  such  wages  as  part  of  his  "cost"; 
that  is,  of  what  we  here  cull  the  "expenses"  of  production. 
The  selling  price  of  his  wares  .seems  to  him  to  be  ba.sed  on 
what  he  has  to  pay  to  his  workmen.  People  are  constantly 
saying  that  they  are  "compelled"  to  pay  the  ruling  rate  of 
wages  or  the  ruling  price  for  an  article,  forgetting  that  one  of  the 
things  that  establishes  the  ruling  prices  or  ruling  wages  is  their 
own  willingness  to  pay  rather  than  go  without.  It  is  the  bid- 
ding of  the  capitalists  for  workmen  that  causes  the  high  rate 
of  wages ;  but  that  bidding  rests  on  the  high  prices  which 
buyers  pay  for  the  wares,  —  that  is,  on  the  utility  of  the  wares 
to  them.  Not  quantity  of  labor,  but  utility,  then  would  govern 
value;  not  the  conditions  of  supply,  but  those  of  demand. 

This  simple  ca.se  gives  the  key  to  the  phenomena  of  value 
under  the  conditions  of  non-comjH'ting  groups.  But  Iwfore  it 
can  l)e  applied,  sundry  qualifications  and  amplifications  must 
be  considered. 

In  the  first  place-,  it  is  rare  that  the  workmen  in  any  single 
trade  are  able  iwrmanently  to  shut  out  competition.  The  case 
of  glass  blowers  has  been  adduced,  by  way  of  illustration,  be- 
cause it  approaches  that  possibility.  Cdass  blowing  is  (or  was) 
one  of  the  few  trades  which  have  preserved  down  to  our  own 
time  the  chnraeteristics  of  a  highly  specialized  handicraft.  In 
general,  workmen  are  partitioned  into  groups,  not  trades.  There 
may,  indeed,  be  temporary  variations  of  wages,  and  these  of  a 
considerable  nort,  !)erauHf  i>f  nudden  rhanges  in  the  demand 
for  one  or  another  kintl  of  lalwir.  Activity  in  the  iron  indus- 
try, for  example,  or  in  building  o|M'rations,  may  cause  unusuallji 


150 


THE  DISTRIBUTION  OF  WEALTH 


: 


'1  fti 

1 1 


al 


\ 


n,,f 


high  vvagcs  for  the  needed  mechanics.  Such  variations  end 'ire 
longer  than  economists  liave  been  apt  to  suppose;  and  the 
workmen  themselves,  as  well  as  their  employers,  often  speak 
and  act  as  if  they  would  last  indefinitely.  In  fact,  unusually 
high  wages  of  this  s(  t  at<^ract  other  workmen  from  the  same 
group  in  society,  and  so  set  in  motion  forces  that  bring  them 
down  to  the  level  common  for  the  group.  Wages  tend  to  be 
adjusted  roughly  to  the  same  level  for  all  the  workmen  in  any 
one  social  and  economic  layer. 

The  influence  of  demand  or  utility  in  determining  th.  range 
of  wages  in  any  one  large  group  is  far  from  simple.  Labor  of 
any  kind  has  a  derived  utility.  The  glass  blower's  labor  has  a 
utility  derived  from  that  of  the  glass  he  makes ;  that  of  the 
ironworker  a  utility  derived  froTu  tliat  of  the  c-ude  or  finished 
iron.  But  it  is  an  artificial  siniplilieation  of  industry  to  think 
of  the  glassware  or  iron  as  if  made  by  the  glass  workers  or  iron- 
workers alone  The  iron,  for  example,  is  made,  not  by  the 
jniddlers  or  rollers  only,  l)ut  l)y  them  in  combination  with  the 
miners  who  dug  th(>  or(>,  the  railway  workers  who  helped  to 
carry  it,  the  common  lulM)r(Ms  who  are  employed  in  each  of 
the  stages,  —  not  to  mention  the  managers,  foremen,  trained 
engin  !•  .  Only  in  comparatively  rare  casi's  —  as  with  the 
services  of  physicians  or  domestic  servants  —  do  the  workers 
supply  single-handed  the  utilities  on  which  their  pay  rests. 
Ordinariiy,  worknitni  of  dilTereiit  kinds  and  grades  combine  to 
make  a  commodity.  .Mi  ;ire  e(iuu!ly  iiidi-peiisal)le  ;  utility  and 
marginal  utility  are  attributes  of  liie  eonimoility  as  such: 
Ixuv  say  whether  the  skilled  meehaiiie  or  the  common  laborer 
has  greater  shiire  in  yielding  the  utility? 

The  priniiple  tif  marpnal  utility  is  here  aiiplieable  under  the 
guise  of  m:irginnl  e(ri>iency  or  marginal  indisp(>nsal)ilit y.  C'on- 
^ider,  for  example,  the  eas(^  of  common  uif^kill 'd  l.ibor.  It  is 
chr.ip  because  there  is  plenty  of  it.  If  there  W(>re  very  l.ltle 
of  it,  it  would  be  in  llie  iiigiiest  deiiree  indispensab'ir,  and 
would  be  paid  for  at  a  corresponding  rate.  Ueing  plentiful,  it 
is  applied  not  only  to  operations  that  are  indispensable,  but  to 


WAGES  AND  VALUE 


151 


others  that  are  less  and  less  needed,  until  finally  its  marginal 
application  is  reacheil  at  the  point  where  it  is  least  needed. 
While  in  some  directions  it  adds  enormously  to  the  output,  or 
to  the  joint  efficiency  of  all  the  lalwr  with  which  it  is  combined, 
in  others  it  adds  less.  It  is  its  marginal  efficiency  that  deter- 
mines the  pay  which  the  whole  must  accept.  So  it  is  with 
skilled  labor.  In  tsome  directions  it  is  in  the  highest  degree 
important ;  the  loss,  wore  it  taken  away,  would  be  ver>'  great. 
It  is  the  lo.ss,  or  diminution  in  output,  which  would  ensue 
if  the  last  instalhnent  of  it  were  taken  away,  that  determines  the 
remuneration  of  any  one  kind  of  labor. 

The  principle,  it  is  obvious,  is  es.scntially  the  same  as  that 
applied  to  capital : '  the  contribution  or  addition  which  the 
marginal  installment  of  capital  makes  to  the  output  determines 
the  return  on  all  capital.  Similarly,  the  marginal  contribution 
from  any  grade  or  group  of  labor  determines  the  remuneration 
of  all  within  that  grade.  Both  for  capital  and  for  groups  of 
laborers  this  principle  works  out  its  results  by  a  slow-moving 
but  persistent  and  jww  erful  process.  The  market  variations  of 
wages,  the  struggles  and  ilebates  of  the  day,  seem  to  be  carried 
on  quae  without  regard  to  it.  Hut  the  "fair"  wages  to  whic^h 
appeal  is  constantly  macU'  in  current  contcntioiH  are  in  reality 
th«'  wages  which  this  slow-moving  process  tends  to  bring  about. 

The  ultimate  determinant  of  value,  then,  where  there  are 
non-competing  groups,  is  marginal  utility,  not  cost  in  the  sense 
of  lalwr  or  effort.  Betw(-on  the  menilicrs  of  any  one  group,  it 
is  true,  exchanges  are  conducted,  and  remuneration  is  deter- 
mined, on  the  basis  of  cost.  Skilled  workmen  in  buying  each 
Others'  products,  and  lawyers  and  pliysicians  in  buying  each 
others'  services,  exchange  in  proportion  to  liil>or,  and  earnings 
within  each  group  are  determined  in  th(>  long  run  by  an  equali- 
zation of  effort.  Between  groups,  however,  this  is  not  the  ca-s. . 
Tli'  range  of  pay  in  the  "lil)eral"  professions  and  in  the  occu- 
pations of  the  well-to-<lo  generally,  is  high  because  their  mem- 
bers are  limited  in  number  coniparetl  to  the  manual  laborers, 

I  Stc  ChuptiT  3s,  1 4. 


ft ' 


ill 


^"1 


f  fti  ' 


m 


152 


THE  DISTRIBUTION  OF  WEALTH 


and  the  marginal  utility  or  efficiency  of  their  services,  is  there- 
fore high.  So  it  is  as  to  mechanics  and  skilled  workmen  of  al) 
sorts  :  their  scarcity  relatively  to  the  demand  for  their  services, 
—  that  is,  the  marginal  utility  of  their  services,  —  gives  them 
an  advantageous  position  and  a  comparatively  high  remunera- 
tion. Expen.ses  of  production,  or  outlays  paid  to  secure  labor, 
are  thus  the  results  of  value  rather  than  the  causes  of  value. 

§  3.   Some  qualifications  to  this  conclusion  must  be  noted, 
in  another  direction.     The  remuneration  of  a  group  must  not 
be  so  high  as  to  attract  laborers  from  another  group.     The 
barriers   between   groups   are   not   impassable,  and   with   tn 
progress  of  society  they  tend  to  become  less  and  less  so.     T 
greater  the  difference  in  remuneration,  the  greater  the  ind'-     ■ 
ment  to  get  ov'er  the  barriers,  and  the  more  likely  a  mov*  i  .  ;. 
of  some  lalx)rers  —  the  alert  and  ambitious  —  into  the  h "n 
ranks.     So  far  as  the  obstacles  to  movement  are  the  r'     ''  o' 
environment  and  nurture,  the  diff«'rences  between  non-i    ■:.!);- 
ing  groups  are  thus  subject  to  a  check.     So  far  as  differc.    v., 
in  inborn  gifts  cause  them  (a  doubtful  matter,  as  we  have  seen), 
no  such  check  can  l)e  in  operation. 

But  even  within  a  group,  numbers  may  increase,  through 
the  growth  of  population.  We  may  conceive  that  a  high  rate 
of  pay  among,  say,  skille*'  lalxirers  would  lead  to  early  mnr- 
riages,  more  births,  and  sr  eventually  to  an  increa-sed  supply  of 
such  laborers.  Conversely,  we  may  conceive  that  if  the  re- 
wards in  a  given  group  —  soy  in  the  liberal  professions  —  were 
low,  marriages  would  be  delayeil,  births  diminished,  and  the 
supply  of  such  labor  lessened.  Movements  of  this  sort  wo'ild 
depend  on  the  standard  of  living  within  the  grouj).  A  standard 
of  living  HO  tenaciously  lu'ld  as  to  affect  natural  increase  may 
l)e  a  force  in  the  background,  fixing  a  sort  of  s\ipply  price, 
and  in  the  end  affecting  relative  wages  more  fundamentally 
than  marginal  efficiency.  There  is  evident e  that,  a  force  of 
this  sort  acts  on  the  numbers  of  the  well-to-do  in  modern 
countries,  and  aids  in  keejiing  them  in  their  favored  position ; 
and  there  is  evidence,  too,  that  the  same  force  is  coming  into 


WAGES  AND  VALUE 


153 


9 

k 


I 


operation  in  the  upper  tier  of  manual  workmen.  But  on  this 
topic,  and  on  the  mode  in  which  wages  are  affected  by  the 
increase  of  members  and  the  standard  of  living,  more  will  be 
said  later.' 

§  4.  The  general  principles  of  value,  as  they  were  stated  in 
Book  II,  are  not  so  profoundly  modified,  by  the  theory  of  non- 
competing  groups,  as  at  first  may  seem  to  Ite  the  ca-se.  It  still 
remains  true  that  varying  expenses  of  production  are  the  causes 
of  most  changca  in  value. 

When  once  the  broad  lines  of  social  cla-ssification  are  estab- 
lished, and  the  earnings  of  different  groups  ailjusted  to  their 
numbers  and  tlieir  marginal  efficiency,  relative  wages  become 
comparatively  stable.  As  Ricardo  said,  "  the  scale,  when  once 
formed,  is  liable  to  little  variation."  -  Changes  in  demaad 
"ause  lulx)r  to  shift  from  one  occupation  to  another  within 
ea.'h  grade,  but  rarely  cause  a  noticeable  change  in  the  demand 
for  all  the  1  ilwrers  in  the  grade.  Hence  variations  in  expenses 
of  production  and  variations  in  cost  of  produft  ()n  ordinarily 
run  together.  The  employer  is  right  in  thinkinji;  that  the 
wages  he  must  pay  to  the  unskilled,  to  mechanics,  to  trained 
engineers,  are  .^ettlec?  once  for  all  by  forces  with  whijh  he 
has  aothing  to  do.  The  forces  <let<'nniuing  them  arc  so  hroac" 
ami  pervasive  that  his  particular  demand,  thoui!;h  it  fonns  part 
of  the  whole  demand  acting  on  each  group,  is  lost  in  the  total. 

Only  long-contiimed  and  far-renchiu'.?  chan^^es  in  demand 
affect  the  reliiiions  between  non-coirix-ting  groups;  and  only 
then  do  expenses  of  production  (tliat  is,  relative  wages)  appear 
as  results,  not  causes,  of  changes  in  value.  If,  for  example, 
the  arts  of  jiroduction  should  be  so  modified  that  cotnmon 
labor  would  need  to  lie  ;ipplie<l  less  and  less;  if  in.'ichinery 
wi  '  so  perfected  that  ordiii'irv  delving  and  hewing  were  don»> 
by  ^  riciite  apjviratus  made  and  guided  by  skilled  mechanic^, 
-  the  relative  situation  of  these  two  groups  would  !>'•  cliangrd. 
Unskilleil  laborers  w')nld  lie  less  ueeiteil.  n!i(l,  if  th'Mr  iiurjt'ers 


! 

i 


y 


'  f'ditipurc  <'ti;i|>t'T»  ">■.'  and  5:i.  mi   I'opuliitioii. 
•  Ri<'itr>iii's  Wurka.  p.  15. 


i 


154 


THE  DISTRIBUTION  OF  WEALTH 


were  the  same,  the  marRinal  i^ffipionry  of  thoif  'alwr  would  be 
less.  The  converse  would  happen  as  to  skill.;  lulwrere  :  they 
woul«l  l)e  more  in  demand,  and  the  marniid  itility  of  their 
labor  '-ould  be  greater.  Possibly  some  sueh  ehange  is  slowly 
taking  place  in  the  countrits  of  advanced  civilization.  Com- 
mon lalwr,  it  is  true,  can  never  be  disiK'iised  with;  but  in 
many  directions  the  need  for  it  seenjs  to  be  lu'coming  loss.' 
If  wages  for  this  grouj)  an-  to  rise,  it  nmst  be  chiefly  by  a  de- 
crease of  supply  rather  than  by  an  increase  of  demand  ;  by  that 
process  of  escape  into  other  and  l)etter-paid  groups  which  is 
the  natural  result  of  universal  education  and  democratic  free- 
dom. 

To  repeat,  such  shifts  in  the  economic  relations  of  the  social 
groui)s  tak.'  place  s<i  slowly  that   tlwy  may  almost  be  disri"- 
ganled.     Possilily  the  time  will  come  when  the  social  stratifica- 
tion of  our  time  will  have  been  obliterate<l ;    when  all  sorts  of 
work  will  be  rewarded  in  proiH»rtion  to  the  sacrihces  involved; 
wlien  all  sorts  will  be  in  equal  esteem;    when  the  common 
laliorer  and  his  children  will  have  the  same  opportunities  for 
cdtication  and  advancement  as  the  mechanic  and  the  lawyer. 
Then  expenses  of  production  or  relative  wages  will  have     pry 
different  aspects  from  what  they  have  now.     Thniiuh  real  dif- 
'/^rences  in  wages  may  still  persist,  Im-cuusc  of  tin-  inUtrn  <lif- 
ferences  of  men,  they  can  hardly  fail  to  Im-  much  less  pronounced 
than  they  now  are.     I'nder  existing  >o<ial  comlitions,  lutwever, 
Mich   p(is-ibilitie<  may   Im-  disregarded.     Variations  in   reward 
are  the  stable  oultx  or'  tin*  gi'nerally  constant  demand  for  the 
different   kinds  of  1 1'' )r.     Changes  in  value  an- n.mmonly  due 
to   changes  in   tlie   (|iiantities  of   the  different   kinds  of  hdntr 
ralleil  for,  that  h,  In  .  Iiai\ges  in  ixst  ,  thouuh  the  general  scale 
value   i>   the   psiitt  nf  demand  ami  utility,  not  of  quantity  of 
labor. 

§  ,"i.    Simil.ir   reasoning   i>-   apj)lical>le  also  to  the  tneory  of 

I  Tli'Ml.iiiiiiMJ  f..rMii-kill..l  li,l..  r  T.  111.  |..  I"  tfi.  :it  m)i<  II  pliiiit  hihI  iimrliiii'-tv 
nri-  luiiii!  (uni-trii.  1<m|  i>ii..  iIm  ntilwix"  i  uiriU,  fni  torn  «.  iiml  -mi  mi.  iiro 
lii  iipffiituiii  ilir  ilnuittKl  19  uiiiti  largHy  fur  i«  ijr«il<  "f  Inhor  bIhjvi-  iliut  l«>vfl. 


I 


ii 


WAGES  AND  VALUE 


155 


I 


international  trade.  That  theory,  as  it  was  stated  in  the  pre- 
oeciing  Book  on  international  trade,  rested  iiiainly  on  a  lul)or 
tluMiry  of  value.'  It  a.s.sunied  that  those  thiiiRs  were  eheap  in  a 
given  eoimtry,  and  hence  likely  to  l)e  «'xi)(>rt('d  from  that  eoun- 
try,  whieh  were  prodiiecd  with  eonipanitiveiy  little  lahor;  while 
those  were  dear,  and  were  likely  to  he  iriipiirtt-d,  which  were 
pro(lue;>d  with  eonipanitiveiy  much  lalior.  W  first  si^ht,  it 
seems  that  all  these  conclusiuns  fail  if  we  adopt  the  priiici|)le 
of  non-eompetiiiK  nionps  and  of  tnaruinal  utility  us  the  ulti- 
mate determinants  of  value,  '^llill!r^  j,ic  clie.ip,  atnl  likely  to 
be  exiK)rte<|,  not  >ini|»ly  liecause  tiieir  ci^t  in  lalxtr  i>;  low,  l>ut 
because  of  the  conipii  x  >ocial  condiiions  that  determine  wilhiu 
a  country  relative  wa«(  >  and  relative  prices.  Vet  the  correction 
ealleil  for  in  the  theory  <(f  international  trade  is,  after  all,  not 
far-reaching. 

The  ci)rrection  would  l>e  vital  if  the  phiuoineMa  of  social 
stratification  were  very  dilTerent  in  dilT.rent  countries.  Then 
it  .iiight  happen  thai  one  kind  of  lalior  say  skilled  me- 
chanics' -  was  clirip  in  one  country  and  ilear  in  anothiT; 
whence  it  would  follow  that  the  former  com iilr\  would  export  the 
proilui'ts  of  Mich  laUir.  if  another  kind  of  lalior  say  routine 
factory  lalM)r  was  <'heai)  in  the  .M(()nd  country,  this  country 
in  tiT.i  would  ex|v»rl  the  produiin  nf  that  I  il.»r.  Hut  In 
fact  ihe  phenoinena  of  social  .".traliliiMtion  .ire  not  widely  diver- 
gent. Non-coinpetiriit  uroups  on  the  whole  a  e  arraim.-d  in 
the  same  series  of  ^r^a'le■.  in  diflVrmt  countries.  .Such  ai  least 
is  the  ease  as  iM-tween  the  civilized  countries  ;  thev  show  essen- 
tially the  same  eleavat'e  lietweeu  the  soft-handed  and  the  hard- 
handed  classes,  the  sjitne  sti  p--  from  skilled  Uieehallie  iliiwn  to 
conmion  lalmr.  Ilenre.  „^  lietwi>en  th.  countries,  these  ureut 
Kocial  demarcations  are  more  im|w>rtaiit  within  their  own 
lM)rders  than  in  their  evclianiies  ujtli  ,  .i,|,  i.tlur  'riii  <e  e\- 
rhangi  ■  -^lill  le-t  in  the  lo'iiii  on  cotnparative  efhciemv  of 
Mm-  It  will  happen  more  freipiently  tdni  tin'  older  eemi- 
omists  thought  that  pecnliar  \  irialion- in  u  aue^  \v  it'e*  in  some 
',s,,   if|»,  mlh  I  l,l|.(.r^   M  .umI  .l.".  ..f  11.,.. k  IV 


^1 


'  t.^KT 


156 


THE  DISTRIBUTION   OF  WEALTH 


.1  I 


1 


If 


one  graile  or  occupation  lower  in  one  country  than  in  another 
—  will  explain  the  exportation  of  a  particular  commodity. 
The  so-called  parasitic  industries  of  (Jermany  and  England 
supply  illustrations.  Certain  sorts  of  educate«l  lalwr,  again, 
are  comparatively  cheap  and  i)le!itifal  in  Ciei-many ;  such  m 
the  situation  as  to  (Jerman  com{X)sitor8  trained  to  set  up 
l)ook«  in  the  ancient  languages,  and  as  to  (Jerman  makers 
of  sonu'  musical  iiistruiuents.  But  these  are  not  the  ruling 
or  typical  ca.se8.  The  main  currents  of  international  trade 
are  still  determined,  as  between  the  rivilize<l  (•«)untries  at 
least,  by  the  comparative  e(Hci«'nry  of  lalM)r  in  producing 
the  import«Ml  and  exjx)rted  commodities. 

§  (>.   The  exchanges  iM'tween  different  countries  are  analogous 
to  the  exchiinges  lH«tw«'en  non-com|H'ting  grtuips  within  a  coun- 
try;   and  the  reseml.lancs  illustrate  so  well  the  play  of  the 
value-determining  forces  that   tlicy  deserve  some  fuller  con- 
sideratiim,  even  thounh  at  the  .xix'n.se  of  prolonginn  still  further 
the  present  digression  from  the  sul)je<-t  in  hind,       ilistriltution. 
As  iM'tween  nations,  so  between  social  groups,  the  range  of 
money  incomes  is  the  ini.trum«'nt  an*l  the  decisive  test  of  gain; 
and  that  gain  is  realiz«'d  in  tin-  purchase  (»f  the  things  or  K«'rvices 
providi'd  l>y  other  groups.     .\n  .\meriea:i  or  Knglishman  secures 
the  greatest   advantages  of   internationut  trade  when  he  buys 
t*>a,  coiTee,  spices,       thiit  is,  things  made  by  low-wage  lalntr  in 
tropical  countries.    Similarly,  the  lawyer  or  business  man  secures 
his  greatest  gains  fnini  the  exchanges  U-t  ween  social  groups  when 
he  buy^  thiniis  made,  or  .services  provided,  by  those  who  are  in 
the  lower  nioup«.     His  nioivey  imdiiie  noes  far  in  il  <•  purchase 
of  the  servi<-es  of  <loin<-tics,       of  il,oremeii  mid   chorewomen, 
maidservant-,  uroonis.  mid   eoaclnniii.      Mill   it   i-  "f  ii<»   special 
a^lvaniane  m  paviim  llie  bill-  of  |»!i\^iri:ms  and  deiiti  Is     these 
are  in  llie  •.ame  troiip  with  liiiii-.'  If,  :ind  tli<  ;r  -i  rviee«  must  be 
paid    for    at    the    limlM-r    l:ite    there    preVilleiil         If    (lie    llll'or    of 
phv4''..»iiH  Mild  ileiilr-t-  Weft    |M><iili:irl\   elli.iriit,  tlieir  -^1  r vices 
woiil<l  U'cheiip,  while  \el  lli'ir  me.ini.s  would  Im'  hmli  in  ;ireord- 
ance  witU  the  standards  of  their  soii,d  grouii      N«it  being  i-fli- 


WAGES  AND  VALLK 


157 


cient  in  any  unusual  degrw,  their  services  are  dear ,  prv,"isely 
au,  in  any  country  of  higii  money  incomes,  thow  <k)nit'stic  com- 
modities  are  dear  in  which  there  is  not  siwcial  ffficiency  of  labor. 
The  analogy  between  nations  and  non-conipetinf;  groups  may 
be  carried  further.  The  rates  oi  t'xc|junji;e  in  iHiih  ( use.s  an- 
settled  by  broad  causes,  acting  slowly  and  lit  lie  liable  to  lis- 
turbance  except  over  lon^  periods  of  tune,  and  heu'c  t!,.v 
are  assumed  by  most  persotis,  and  indeed  l)y  mo-t  eeonotnists, 
as  matters  of  course.  That  money  incomes  should  he  com- 
paratively high  in  the  rnjteil  States  and  lOnmlaiid  aii<l  Fraiu  i- 
and  Clerniuny,  is  commonly  aeeepted  as  part  of  the  order  oi 
nature.  The  fact  tliat  tlu'  money  incomes  of  physicians  and 
lawyers  and  the  upper  tier  of  luisiness  men  an-  comparative!-, 
high  is  accepted  iu  the  sanie  uiicpu'stioning  wav,  liecuiisi  of 
the  familiarity  and  the  permanence  of  the  diiTereiiccs.  In  lM)th 
cases  the  differences  are,  none  the  less,  due  to  caiiso  which  are 
to  Im»  found  proxinuitely  in  the  cond  lion-  of  demand  between 
groups  and  iK'twecn  nations.  I.yinit  I'ack  of  these  conditions 
of  demand  i.iay  perhaps  bf  found  iIicimt  'aiiscv,  inborn  and 
ineflfaceable  differences  in  intcIligiMice  and  (haracier.  We 
have  wen  lu>w  didicnlt  it  is,  as  U'tween  social  uronp-^,  to  decidt? 
whether  acquire<l  or  inlH)rn  traits  dricrmine  the  liiii".  of  social 
divisitjiis.  So  as  between  nation>,  it  is  not  easy  to  >a>  whether 
the  advantages  which  one  country  or  another  ma\  ihom-ss  are 
due  to  innilteralije  racial  iinalities,  or  to  the  a>cideiii-  of  his- 
torical development  and  ac<|uired  skill.  I'robalilv  the  racial 
caus<vs  tell  more  in  >ettling  the  dilTerence>  and  tin  lesultiiig 
exchanges  between  a  civilized  nation  and  a  barb  miiis  or  mmu- 
civiliztMl ;  whereas,  between  the  <i\  ilized  nations  iheiiiselMs, 
ac(|uire<l  traits  are  of  more  importance.  Ilowevc;  tin  niav  lie, 
llie  difTercnccs  e\i>4t.  and  not  oni\  e\ist.  but  luamlani  Iheni- 
sehi  .  Iliroiigh  generation^  jiihI  t  iiitiiiie-. ;  a-^  do  iIiom-  between 
social  groups  within  a  ioniitr\  Vl  atu  i'.i\rii  hnn',  and  for 
considrralile  jK'riiKis,  they  nin-t  br  acccpii  ,|  a-  .ncnlt  !*  fails. 
and  thus  as  causi>s,  not  un«l\/ed  as  re-iilts 


/ 


■w 


1iT 


CHAPTER   49 

RrSIMvSS    PltOFITS 

§  1.  We  i\  turn  now  to  the  main  cuursi;  ol  tin-  urguaunt, 
resuming  tin-  subject  of  distrilmtion.  Husines«  profits  present 
many  of  the  prolileins  jjresented  hy  tlilTerences  of  wages,  and 
are  l»est  regard<'il  a?*  simply  a  form  of  wages.  Vet  tliey  have 
many  peculiarities  and  call  for  separate  consideration.  Various 
phras«s  have  been  used  to  designate  this  shari'  in  distril)Ution : 
"wages  of  manag«ineiit,"  "net  prolils,"  "liusiness  earnings," 
the  reward  of  the  "entrepreneur"  or  "undertakir "  or  "enter- 
priser." Tlu'  term  "business  prulils,"  as  used  in  everyday 
speech,  conns  sufficiently  near  to  designating  the  sort  of  income 
now  to  be  considered,  and  the  term  "liusiness  man"  similarly 
indicates  what  kind  of  |)erson  secures  it.  These  terms  will  lie 
used  in  the  fnijuwing  pages. 

The  independent  conduct  of  indu>try  is  tlie  salient  charac- 
teristic of  the  business  man's  work.  He  assumes  the  risks  of 
the  oulcoiui-  of  industrial  operations;  wherea>  the  salarii'd 
person  or  wage  e  truer  ha^  a  d>  finite  amount  promised  hint  in 
atlv.incc  for  settl<d  ihities.  In  this  respect,  it  is  iiniuiiterial 
whether  the  busiiie-,  uiau  coiidii't»  operations  on  a  large  s<'ale 
or  nn  a  >mall.  The  \  illage  mbbl.  r  and  tlu-  owner  of  the  large- 
•'C.de  -hor  laitory,  'ln'  pi  tl\  -hopk'  ■  per  and  the  great  merchant, 
the  pcii-iml  proprietor  and  the  e>l:iii  faiiiti  i.  alike  are  inisiness 
men  and  earn  bu-'ine-.s  pnilit-,     Tl  '■  physician  or  lavwer  who 

is  elig  iged  in  the  illdi  pendent  lirilctiM'  of  hi-  pnife--^ion  is, 
fiuiii  thi-  point  111  \ie\v,  ni  thr  -aim  cj.i  -. .  fnr  hi^  position 
evidently  dilf"  r-  III  a  -"iniilar  way  I  nun  thiii  of  the  physiciuii 
or  la.'.yir  «Ihi  i-  iiigageil  .hI  a  li\ed  ^id;ii\  Hut  usually  we 
lluiik  in  I'Miinictinti  vMih  bii-ini-,H  nuinimiinenl  rhi<lly  of  those 


BUSINESS  PROFITS 


159 


! 

t 


whu  conduct  operations  on  a  coasicU'rablo  poale,  who  hire 
others  to  work  for  th<'rn  and  under  thetn,  who  have  to  make 
plan-  of  M)nie  complexity,  whose  own  work  is  mainly  or  exclu- 
sively tlit-  direcfion  of  affairs.  We  think,  too,  of  the  more 
comnion  industrial  oiH-rations  in  trade  and  manufactures.  We 
siiall  IhsI  appro.tch  the  special  i)rol)lems  of  business  profit  hy 
lii-st  considerinf:  rhes<'  familiar  and  typical  cases. 

§  2.  Tin-  l»usniess  man  stands  at  tlic  helm  of  industry  and 
Ruidi"-  it-  'f)t  rations.  Into  his  liauds  lirst  How  the  proceeds, 
anti  lie  di.>t'il)Utts  to  others  their  shares.  He  pays  to  the  hired 
worknu'U  tiieii  stipulated  wa>>;es.  ."similarly,  lo  those  who  lend 
himcapit.il.  In-  i»ays  stipulated  interest.  It  is  his  \vciy;hii)K  and 
f?ues-inn  ol  tht  nioiiey-makiiiK  pos-iliilities  of  ditTcreiit  sites 
that  determiiK-  the  rent  of  uriiaii  land,  luid  he  pays  to  land- 
owners (heir  mil-^  \tter  making  these  various  |iayments, 
he  retains  in  \n-  own  hand  what  is  left.  Ilis  income  may  there- 
fore Ih'  dt'scrilied  as  rt-idual 

This  position  as  rr-nhi.il  c|:iimaiit  exfilains  one  striking 
eharaettristieof  liiisiiies.s  proht-.  -the  irntjuiarity  of  the  income. 
In  one  year  the  husinc^s  man  m.n  earn  noil  iiiy;,  lu.iy  even  l(»se. 
Another  year  he  may  \inm  nn.ii  -uius.  The  variations  frrim 
year  to  year  of  the  >ame  ludu  idual's  profit-  arise  from  the 
l»usines*<  man's  as>(imptioii  of  mdu-trial  risks.  Though  some 
huaanls  arc  so  reitMhr,  in  tln'ir  ii<rurreiice  over  a  lar^e  number 
of  ca.ses,  thai  tiny  cm  I"' in-nrrl  asiaiii-l  iliretuid  loss  at  soa), 
most  nnisl  be  borne  once  for  all  liy  the  individual  who  first 
a-s-suines  tlhrn;  as  those  iVoni  lluctiiiition-  in  demand,  iiiven- 
tiori>  and  new  proces-e«,  up^  and  downs  in  nemraj  prices.  The 
net  income  of  the  Imsine-^  man  i-  ine\it.il'l\   lliicluatiiiK. 

The  liu-nie— <  man  nun-  e-|)(ciall\  IccI-  lirsl  the  effect-*  of 
channe  in  pnce-^.  Winn  puces  ri-e,  hi'  yains  for  a  while; 
when  they  fall,  lie  |om  lor  .i  while  Thi-  i^  (rue  of  eliaiiue- 
in  (lie  prices  of  putu  nl.ir  emuniodities,  tor  llie  im-iness  men 
who  have  to  de.il  v\  it  li  llii>»e  commodities  ,  it  is  true  nl  elianK'  s 
ill  general  price-,  for  Im-ine-  nun  a*  a  e!a»»  Ibnei-  inaii\' 
penjile  ^et   the  impression  that   I'uymn  uml  -ellini;.  and  dKillfnl 


i^ir 


i*)i 


>!!'• 


If; 


f 


W 


160 


THE  DISTRIBUTION  OF  WEALTH 


manipulation  of  prices,  are  of  the  essence  of  business.  It 
has  already  l)een  pointed  out '  in  what  way  rising  and  falling 
prices  affect  the  relations  of  business  men  as  employers  with 
the  laborers  whom  they  employ.  There  is  a  close  <lependenee 
of  business  profits  on  })rices,  the  business  man  being  the  buffer 
for  the  first  effects  of  all  changes  in  the  value  of  money.  But 
this  is  often  a  temporary  relation ;  it  affects  the  fluctuations 
in  his  income,  but  does  not  determine  in  the  long  run  its  amount 
or  indicate  its  source. 

So  great  are  the  risks  of  business  that  many  people,  again, 
look  upon  it  all  as  a  game  of  chance.  Some  win,  some  lose,  — 
it  is  but  a  great  lottery.  And  there  are  not  a  few  individuals 
who  actually  enter  on  business  operations  in  this  .spirit,  with 
as  little  close  calculation  or  careful  n\anagement  as  a  gambler 
uses.  But  it  re(|uircs  no  refinecl  observation  to  show  that 
success  is  not  entirely  a  matter  of  luck.  True,  there  are  gains 
in  one  year,  losses  in  another.  Sometimes  it  even  happens 
that  permanent  success  is  won  by  chanic.  A  turn  in  the 
market,  a  new  commodity,  ;>  new  mine,  may  yield  a  fortune, 
—  the  business  man'-<  goal.  One  who  has  thus  won  a  prize 
may  havi>  the  good  sense  to  stop,  and  to  withdraw  with  his 
winnings  from  the  uncertain  arena.  But  usually  he  tries 
again,  and  still  again.  Then  over  a  series  of  years  it  appears 
that  some  individuals  show  a  steady  l.alance  of  gains,  while 
others  in  the  end  lose  and  di.sapp«'ar  from  active  business. 
The  elements  of  success  are  various,  shrewdtuss  in  meeting 
risks  a-^  well  as  skill  and  ability  in  organization.  Miit  continued 
success  i>  not  due  to  cluince.  It  i  due  to  tlie  pos,spssi(m  by 
.sonu'  indi\ldual>  of  .iiudities  not  poss^'•<^ed  by  otber'< 

Again,  these  qimliiie-i  are  |M,HMe>^ed  in  very  varving  degree, 
or  at  |e!i.st  with  vc  rv  varvum  re'-ults,  by  different  individmils. 
The  ixreat  ramie  nl'  thi<  iiieoiiie  is  even  more  strikiUK  than  its 
irregularitv  lur  aii\  one  person.  .Sunie  tnfn  •mem  \,,  have  a 
golden  toiji  h  i:\ir\lhiMK  Id  wliieli  lh.\  turn  then-  hand 
vielils  rnnaeuloi|s|\        I'luv   an    the  captanis  of   mdustry,   the 

'  S....  H,,.,l,   III    Clmi.i.r  JJ    }  II 


r*'--' 


BUSINESS  P.^OFITS 


161 


"big  men,"  admired,  feared,  and  foUowed  by  the  business  com- 
munity. Others,  of  slightly  lower  degree,  prosper  generously, 
though  not  so  miraculously,  — the  s<>lect  cliiss  of  "solid  business 
men,"  Thence  l)y  injiH>rceptihle  gnulations  there  is  a  tlescent 
in  the  industrial  and  social  hierarchy,  until  we  reach  the  small 
tradesman,  who  is  indeed  a  business  man,  but  whose  income  is 
modest  and  whase  position  is  not  very  different  from  that  of 
the  mechanic  or  the  clerk. 

A  wide  range  in  the  earnings  of  individuals  doing  the  same  sort 
of  work  is  a  peculiarity  of  all  intelK'ctual  occupations.  Though 
some  mechanics  are  more  skillfid  and  better  i)aid  than  others, 
the  differetu'cs  are  not  comparable  to  those  between  lawyers, 
physicians,  artists,  business  men.  This  is  due  to  the  fact  that 
the  differences  l)etween  men  in  int«'nectual  endowments  are 
vastly  greater  than  the  differences  in  manual  vigor  and  apti- 
tude. Though  not  every  man  can  be  made  i>y  traiiving  and  prac- 
tise a  skilK'd  mechanic,  very  great  numbers  can  be  brought  to 
the  highest  }K»ssible  pitch  of  such  skill.  It  may  be  that  many 
more  men  couM  l)e  made  l)y  training  intoservicealilc  physicians 
and  lawyers  and  business  men  than  in  fact  are  so  made;  but 
the  numlHT  who  can  attain  the  highest  possible  pitch  of  skill 
in  thest"  occupations  is  very  .snudi  imieed. 

§  3.  Th«'  differences  in  the  long-run  earnings  of  different 
business  men  raise  the  same  (juestions  as  were  considered  with 
ri'ference  to  ordinary  wages.  .\re  they  due  to  differences  in 
tnlx)rn  abilities?  or  arc  tin  y  the  results  of  training  ai\il  envinm- 
ment  ?  Do  thi'  more  pnts|M'rous  busin«'ss  men  spring  from  tlie 
genend  non-coinp«'ting  grou|i  of  tiie  w«ll-to-do,  with  all  the 
ailvanlagcs  of  that  class'*  or  is  their  success  irrespeclix  <■  of 
their  start  in  life,  and  due  mainly  to  natural  endowin<iit  ? 

.Sonn'  familiar  |)henomena  point  to  tlie  cxpliifiatiuii  on  the 
gr«)und  of  inlMirn  differences.  Poor  i)oys  risi»  to  fortune.  In 
the  Tnit*"*!  States  the  farming  class  has  been  a  great  nur>t  ry 
of  fortune  builders.  On  the  nther  hand,  the  sons  of  tlie-e  \.  ry 
ca|»tains  of  imiustry  i'onunot\ly  drop  from  the  post.s  of  Iciilcr- 
ship.     Notwithstanding   all    the    uilvanlagcs   of   training,  tiot- 


"I "  I 
'!':;    'I! 


\l 


162 


THE  DISTRIBUTION    OF  WEALTH 


withstaiuliug  the  inheritance  of  means  and  of  favoring  oppor- 
tunities, they  are  apt  to  resign  the  active  conduct  of  business 
to  men  who  again  have  risen  from  the  ranks.  Cases  of  this 
aort,  to  U"  sure,  are  not  ahvuys  so  si<;iiificant  of  the  non-inherit- 
ance of  business  al)iUty  as  they  seem  to  be.  The  failure  of  the 
rich  man's  sons  to  enmlate  liis  iichieveraents  may  l)e  due  to 
lack  of  motive,  not  lack  of  ca|)acity.  The  spur  of  need  and  of 
unsatisfied  social  amiiition  is  lackiiiii;.  Xone  tlie  less,  there  are 
Ciises  in  plenty  where  tlios*'  to  wliom  the  nmnagement  of  an 
established  busimss  is  bcciueatlic.l.  fail  to  maintain  it  even 
though  they  try.  .\gain  and  apain  ol(l-<>stablished  firms  whose 
founders  have  passed  away  go  to  pieces  under  the  management 
of  tlie  heirs. 

But  here,  as  with  other  occupations,  there  is  danger  in  fasten- 
ing attention  on  the  conspicuous  |)hrn()inena  al<me.  Captaina 
of  industry  are  doul)tless  born.  So  are  great  poets,  musicians, 
men  of  science,  lawyers.  Though  there  may  be  occasional  sup- 
pressed geniuses  among  thf  poorer  classes,  ability  of  the 
liighest  order  usually  works  its  way  to  th(>  fore.  Talent  and 
good  capacity,  on  tlu'  other  han-l,  are  much  less  rare,  and  they 
need  to  be  nurtured.  A  favoral)le  .start  may  bring  success  to 
one  man  uf  g.iod  al)ility;  its  al'sence  may  prevent  another  no 
less  able  frtun  rising.  Reneath  the  highest  tier  of  tlu>  extra- 
ordinarily capable  business  men,  there  is  a  great  stratum  of 
prosperous  and  well-to-do  persons,  to  whom  the  advantages 
of  capital  and  connection  have  l>een  of  cardinal  importance. 

Capital  and  connect  ion,-  -these  are  thr  two  factors  which  may 
make  a  bu-^iness  career,  who<e  alwence  may  mar  it.  Every 
busine-<s  man  mu^t  have  the  loinmaMd  of  means,  his  own  or 
l)orrowed.  True,  if  lie  has  the  hiuliest  abilitii-s,  lack  of  Jneans 
will  nol  long  enih.iriM^s  liiin.  Ills  start  mfiy  l)e  -low,  but  lie 
will  *«m  liiive  -:ivuiL'-  of  \\\'<  "wn,  will  liorrow  eaiiy,  and  lii'fort! 
long  will  find  ;i-  .„iates  wlio  uiv  tint  only  wHliiiu  but  ea^er  to 
intru-t  l(>  liiiii  nil  thf  money  lu'  wisln-.  It  i<  ntlierwise  with 
the  man  nearer  tli.>  .iveraite.  If  parent-^  or  friends  ■^iipply  him 
with  the  command  of  eapilal.  lie  has  a  great   advantage  over 


BUSINESS  PROFITS 


163 


the  less  favored  of  the  same  ability.  So  it  is  with  connection,  — 
not  merely  acquaintance  and  relationship,  but  all  the  varied 
influences  of  environment.  He  who  is  born  in  the  well-to-do 
classes  is  surrounded  from  the  outset  by  the  business  atmos- 
phere. Traditions,  advice,  opportunities,  come  to  him  spon- 
taneously. Wliutever  abilities  he  has,  find  a  favoring  ground 
for  their  development. 

Set  training  doubtless  counts  for  less  in  the  business  career 
thpn  in  the  other  occupations  of  the  well-to-do.  There  is  no 
education  for  the  business  ni'in  comparable  to  tliat  required  for 
the  engin«'er,  the  physician,  the  lawyer.  Though  it  is  probable 
that  in  the  future  Ixjsiness  training  will  be  le.ss  haphazar<l  than 
it  has  been  in  the  i)ast,  imd  will  be  in  greater  degree  the  object 
of  methodical  instruction,  set  teaching  will  never  play  the  part 
which  it  plays  in  the  professions.  The  career  will  be  always 
comparatively  ea«*y  of  access.  The  obstacles  to  1h>  surmounted 
will  l)e  chiefly  those  from  lack  of  means  and  from  all  the  vague 
but  potent  influences  of  environment. 

§  4.  Tlie  business  man  of  the  first  ord<T  nmst  have  imagi- 
nation and  judgment;  lie  imist  have  courage;  and  he  nmst 
have  administrative  eapneity. 

Imagination  and  judgment,  —  these  are  needed  for  the 
generalship  of  inihistry.  Tiie  successful  l)U>iness  man  nmst 
be  al>le  to  fon-see  possibilities,  to  estimate  with  .sagacity  the 
outcome  in  the  future.  r.speci;dly  is  tills  necessary  in  new  \en- 
tures;  and  it  is  in  new  ventures  that  the  ()iialiliex  of  generaNhip 
are  most  called  for,  and  the  greatest  profits  are  reaj)ed.  Count- 
less .sehemes  for  moiit  y-iiiaki?ig  are  being  constantly  urged  on 
the  business  coiiiinunity.  iMo>^t  of  them  visionary.  Among  them 
the  eai)l:iin  of  imlii'^try  will  pick  out  those  th.-it  reidly  havi- 
|)ossibililies,  will  n"^liape  iiiul  <levelop  them,  ami  bring  them 
ev(  iilu.'illy  to  '^Mi'ce-'^.  Sometimes  he  err"* ;  there  eoulil  lif  no 
great  sueiTsse'^  unles-^  there  were  occasional  failures;  lint  the 
ritilit  sort  of  rii.'in  h.'f*  a  handsome  b'llance  of  profitable  vent nn". 
\ot  infrequent l\  tlioM'  :irc  supposed  to  have  the  re((uisite 
judgment  who  in  fact  do  not  possess  it.     Personality  tells,  but 


!»1 
1    11 


I 


164 


THE  DISTRIBUTION  OF  WEALTH 


I 


|i    ' 


maj'  be  deceptive,  —  a  vigorous  presence,  incisive  speech, 
kindling  enthusiasm.  Time  and  again  an  individual  with  such 
a  personality  secures  a  hold  and  a  following,  and  is  enabled  to 
embark  on  large  ventures.  Yet,  finally,  he  comes  to  grief  be- 
cause in  the  end  he  proves  not  to  have  the  saving  quality  of 
judRmont. 

Courage  and  some  degree  of  venturesomeness  are  obviously 
essential  to  the  successful  business  man :  so  much  follows  from 
that  assumption  of  risks  which  is  of  the  essence  of  his  doings. 
But  courage  and  imagination  and  personality  will  not  avail  in 
the  end  unless  there  l)e  sound  judgment. 

Exciutive  al)ility  is  probably  less  rare  than  the  combination 
of  judgment  with  imagination.  But  it  is  by  no  means  common. 
It  calls,  on  the  one  hand,  for  intelligence  in  organization,  on  the 
other  hand  for  knowledge  of  men.  The  work  must  be  planned, 
and  tlie  right  man  a.ssigned  to  each  sort  of  work.  The  selection 
of  cflicicnt  sul)ordinates  is  of  the  first  importance.  A  vigorous 
constitution  —  vigorous  in  its  capacity  to  endure  prolonged 
application  and  severe  nervous  strain  —  is  almost  a  sine  qua 
nnn,  as  it  is  with  the  military  leader. 

A  business  man  almost  always  ha.s  to  do  with  the  physics  and 
meclianics  of  industry.  Every  director  of  large  enterprises  must 
choose  l>etween  competing  mechanical  devices,  must  watch  the 
course  of  invention,  must  Ite  in  the  fore  with  improvements.  It 
might  lie  sui)posed,  therefore,  tliat  men  of  mechanical  talent 
would  become  the  l(>aders  in  industry.  Yet  this  is  by  no  means 
the  common  case.  Most  freiiuently  the  inventors,  engineers, 
and  mechanical  experts  are  in  the  employ  of  the  business  man. 
Occasionally  an  individual  a|)pears  who  has  in  high  degree  both 
the  business  (lualities  and  the  inventor's  qualities.  Such  were 
Stepiiensoii  fli(>  Kiiiilish  engineer,  an<l  Werner  Siemens  among 
Ciermans  ;  sucli  is  I'.dison  among  Americans.  But  the  union  of 
two  diverse  kinds  of  ability  in  one  person  is  no  more  common  here 
than  in  other  walks  in  life.  Usually  the  .sort  of  judgment,  in- 
sight, courage,  p<'^^istefl^(^  which  are  needed  for  the  develop- 
ment and  wide  use  of  improvements  are  not  possessed  by  the 


BUSINESS  PROFITS 


165 


inventor  himself.  Watt,  the  inventor  of  the  steam  engine  (or  at 
least  its  successful  perfector)  needed  thejudgimnit  av  ■.  resource, 
as  well  as  the  capital,  of  his  business  partner,  Boulton.  Ericsson 
was  an  inventive  genius  of  tlie  first  order :  his  screw  propeller 
revolutionized  marine  transportation,  and  his  Monitor  in- 
fluenced to  hardly  a  less  degree  the  development  of  modern  war- 
ships. But  he  pinned  his  faith  also  on  the  caloric  ship,  regard- 
less of  the  fact  that  the  required  bulk  of  the  machinery  was 
excessive.'  In  selecting  among  tiie  numberless  projects  con- 
stantly pressed  on  his  att(!ntion,  the  l)usiness  man  exercLses 
one  of  his  most  chara(;teristic  functions. 

Too  much  stress  must  not  l)e  laid  on  any  enumeration  of  the 
business  man's  qualities.  All  sorts  and  conditions  of  men  prove 
to  have  the  qualities  needed  for  pecuniary  success,  —  tiic 
cautious  and  the  daring, the soIkt  and  the  enttiusiastic,  the  lo- 
quacious and  the  taciturn,  those  given  to  detail  and  thoM>  negli- 
gent of  detail.  The  diiTt-rent  aptitudes  appear  in  every  kind  of 
combination.  Some  heads  of  large  organizations  keep  every 
thread  in  their  own  hands,  and  not  only  plan  the  large  outlines 
of  their  ventures,  but  look  to  every  detail.  Others  intrust  al- 
most all  administration  to  subordinates,  and  keep  themselves 
free  to  think,  plan,  confer.  There  are  those  who  keep  strictly  to 
"their  business,"  —  the  particular  branch  of  industry  in  which 
they  have  (-mbarked ;  and  again  tliere  are  those  who  launch 
freely  into  new  anil  varii'd  enterpri.ses.  Xo  one  key  o\iciM  the 
doors  to  success. 

The  differences  are  equally  striking  as  to  finalities  not  di- 
rectly connected  with  iwenniary  success.  Some  business  men 
are  of  intellectual  bent,  others  are  dullards  in  everythnig  but 
business.  Some  deal  generously  with  their  employees,  others 
constantly  scheme  to  ttverreaih  them.  Some  are  high-minded 
and  public-spirited,  others  mean  and  sellisli.  Tliirty  or  fifty 
years  ago,  writers  on  econonnc  and  social  (juestions  were  prone 
to  celebrate  the  virtues  of  the  class.     In  recent  years,  "business" 

'  The  Nliip  which  h"  i<'iiiipi"'l  «  I'h  'hi-  i-:ih>rli  iiiiiiii'  w  n  propt-lh-d  piTf<'rtly 
Hw  ("hiirch,  LiJk  nj  Ertf«a>m.  Vol    I,  ('ha|)t(>rt  .\I,  Xll. 


' 


MICTOCOfV   RESOIUTION   TIST   CHART 

(ANSI  and  ISO  TEST  CHART  No   2l 


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'(.M    I. ..I    U.|...    -.l.*.! 


166 


THE  DISTRIBUTION  OF  WEALTH 


ii 


r 

If 


.  has  come  to  Iw  in  bad  odor;  it  is  associated  in  many  minds  with 
grasping  monopoly,  manipulation  of  securities,  tyranny  over 
laborers.  In  truth,  tlie  business  man  at  his  best  is  an  admiralije 
figure  in  our  modern  \vorl>l,  and  at  his  worst  is  a  very  ugly  one. 
Tlie  variety  among  tiie  men  who  prove  to  have  the  money- 
making  capacity  is  a  standing  cause  of  wonder. 

§  o.  Among  all  these  dilTerent  sorts  of  persons,  a  process  very 
like  natural  selection  is  at  work.  To  predict  who  has  in  him  the 
qualities  for  success  is  much  harder  than  is  prediction  with  re- 
gard to  most  occupations.  The  aptitu.les  and  ai)ilities  whi-h 
nu)st  1),.  possessed  by  imv  who  would  succeed  in  law,  in  medicine, 
in  engineering,  in  teaching,  show  theniM-lves  at  a  <-omparativeIy 
i'lirly  age,  and  a  friendly  observer  can  oft(>n  give  good  advice  as 
to  the  choice  of  these  professions.  But  the  ([ualitics  that  make 
for  success  in  business  management  not  infrequently  develop 
lute,  or  at  least  show  themselves  late  and  only  under  actual 
trial.  Surprises  are  more  common  in  this  walk  of  lifo  than  in 
any  other.  A  constant  pn.cess  of  trial  is  n„i„^  „„,  Those  who 
have  the  requisites  for  sueee.s,s  come  to  the  fore,  those  who 
lack  in  some  essential  drop  to  the  renr. 

The  drift  of  all  this  is  that  in  the  business  career,  as  compared 
with  most  otIuTs,  ini,„ni  enpiicity  counts  more,  training  and 
epviroimient  less.  Knvir..inn.'nl  and  eas..  of  start  seem  to  !>.>  of 
consequence  in  what  we  may  call  tli.>  n.i.Kll..  range  of  t!u«  o.tu- 
palion,  -  thebusincvssrsof  mo.lerat.-  scale,  re(|uirinK  a  substan- 
tial capital  ami  yicldin-.-   res,„.,.,ab|,.  mid.ljr-.lass  inc. ,  l„it 

calling  for  no  unusual  dcjrre..  of  judgment  or  administrativ.- 
•■dHhty.  The  Krowlh  of  large-s.'al..  operali..ns  in  .'v.tv  dir.rtion 
hasma.l..b„sin<ss..sof  il,issort  nlativrlv  less  inip-rtmit  ami  nu- 
merous than  Ihry  werr  ,lf  „  .vntnry  ago.  \o  .loubt,  thev  are 
still  nmnen.us  and  iin|...rtant  ;  and,  as  to  them,  th.Tr  may  b.. 
Mmi.-thinir  Mkr  a  ,  a>te  or  non-.'<mip..tintt  group.  Thrv  tend  to 
remain  u,  the  hands  of  thoM-  who  hav  th..  advantair-s  of  .-apital 
"•"'  <•"">'<•.  tion.  As  to  thrni,  it  may  b,.  true  that  there  are 
pl,-nty  ot  ,K-r>on.  in  Ih.^  s..-rall.  .1  Iou.t  group  <.f  socL'tv  and  in 
the  working  c|«ssc.«  who  cn.iM  take  elmr-e  .  qualiv  well.     Hut  n. 


liUSINESS  PROFITS 


167 


the  ujipor  rauK*'  (li  the  business  world,  in  the  iarK(>  enterprises 
wliicli  (luniinale  more  and  mure  the  indur^try  ol'  modern  times, 
native  ahility  tells. 

Native  al)ility  is  recniiteil  I'rom  all  cheeses.  There  are  eon- 
spicuous  eases  ol'  men  ri>inK  lioui  the  ranks.  \v{  most  ot'  those 
who  eonie  to  the  fore  have  probably  i)c«;im  with  the  associations 
and  environment  of  property  and  of  bi>>ine>s.  The  commonest 
ease  is  that  of  the  youn^;  man  born  in  the  middle  class,  and  im- 
bued with  its  traditions  and  ami)itions,  inheritinji  vijffjr  and 
judnnu  nt,  Iiut  not  enervated  by  the  inheritance  of  larKe  means. 
As  has  ah  rally  been  remarLcd,  tin*  farming  cla>s  in  the  I'nited 
States,  which  bcloiifis  in  its  traditions  and  outlook  rather  to  the 
jjossessinj;  than  to  the  nonpossessinji;  class,  ha.i  been  in  this 
country  a  ^reat  nursery  of  l>usiaess  ability.  Possibly  tluTc  is  a 
fund  of  such  aliility  hidden  and  smothered  amonn  the  liircd 
workinKincn.  Hut  I  he  ease  with  which  capable  men  make  their 
way,  even  from  the  poorest  liejjinninns,  speaks  against  the  sup- 
position. So  simple  is  access  to  this  career,  so  cominc)n  is  the 
rise  of  the  cai)al)le  from  the  ranks,  so  constant  and  searching;;  the 
process  of  natural  selection  in  the  business  world,  that  we  may 
renard  it  as  probable  that  all  who  have  marked  nidural  «ifts  are 
j'nabled  to  evercise  them.  It  is  almost  certain  that  such  n'fts 
have  a  preponderant  intluence  in  determining  i)usiness  success. 

§  (i.  Till-  aim  of  the  luisincss  man  i>  to  "nuike  money,"  and 
the  chief  motive  which  stirs  him  to  makinn  it  is  sociiil  amiiition. 

The  succ(  I'ul  bu-iiiess  mati  is  the  iiackboiie  of  the  well-to-do 
and  possessing  classes  of  modern  society.  His  ambition  is  to 
accumulate,  not  nienly  to  earn  a  livinif.  The  l.'iwycr,  tin* 
physician,  tin  teiich(>r,  is  reasonably  content  if  he  succeed-  in 
sui)portin!t  and  rcarinn  a  family  according  to  the  standards  of 
his  class,  and  in  makiuR  some  moderate  prnvivion  for  the  fu- 
ture ;  thoujfh,  beiny:  in  eloM'  .i^sociation  with  the  business  set,  he 
may  be  inrected  id-o  with  (he  fever  of  accumulation.  Mut  the 
l)usiiie^s  man  c.amint  escape  th.'it  infection.  The  aim  of  all  in  hi  • 
class  is  to  xain  more  thiin  enouuh  to  support.  I'o  ni't  toitether  a 
competence  or  a  lortune  is  the  one  test  t)l  "success.  '     lie  must 


blil 


HI 


It 


168 


THE  DISTRIBUTIOxN   OF  WEALTH 


be  able  in  his  later  days  to  live  at  leisure  on  his  settled  income, 
or  at  least  transmit  to  his  descendants  the  opportunity  of  leisure. 
We  do  not  commonly  think  of  the  money-maker  as  a  person 
who  saves.  Not  infrequently  he  is  a  liberal  speniler.  But  he 
spends  less  than  he  makes.  His  one  aim  is  to  make  a  great  deal 
more  than  he  spends,  and  to  put  it  by.  His  accumulations, 
though  they  may  involve  little  conscious  sacrific(>,  are  none 
the  less  real  savings,  and  constitute  probably  the  most  impor- 
tant source  of  the  community's  supply  of  capital.  Though  no 
statistical  or  quantitative  measurement  is  feasible,  it  is  probable 
that  the  larger  portion  of  the  extraordinary  growth  of  capital 
during  Ihe  last  two  centuries  has  come  from  the  comi)etenees 
and  fortunes  of  the  business  class. 

Every  successful  l)usiness  man  thus  leaves  behind  him  a  trail 
of  accH'tions  to  the  well-to-do  classes.  His  children  start  with 
advantages  of  education,  environment, easy  command  of  capital. 
Their  occupations,  their  ambitions,  their  standards  of  living,  are 
on  a  new  plan(>.  If  they  inherit  ability,  it  finds  .scope  for  exer- 
cise at  once.  If  th(>y  have  only  moderate  capacity,  the  best  is 
made  of  this  by  training.  Often  the  riches  which  they  inherit 
prove  a  treacherous  gift,  preventing  the  use  of  good  natural 
powers,  and  encouraging  sloth  and  dissipation.  There  was  a 
tradition  in  older  days  that  new-made  wealth  did  not  remain 
long  in  the  same  family,  It  was  said  to  be  but  three  generations 
from  shirt  sleeves  to  shirt  sleeves.  No  such  generalization 
would  be  tenal)le  to-day.  The  machinery  for  safely  investing 
and  keeping  accumulated  pror)erty  is  highly  develope<|,  and  is  at 
any  one's  command.  They  who  once  possess  can  continue 
to  hold,  and  jxTsons  who  iuive  been  lifted  among  the  soft- 
handed  elasses  cling  to  their  place  with  extraordinary  tenacity. 
\Miile  then-  is  a  con'inuous  movement  upward,  not  great  in 
volume,  but  steady  and  consider  il)l(>,  — there  is  no  apprei'ial)k' 
movement  downward. 

Thr  most  powerful  spur  to  the  business  nem's  activity,  to 
repeat,  is  .social  ambition.  The  deep-rooted  impul.se  of  euKila- 
tion  ieuds  luui  to  try  to  swing   himself  into   the   ranks  of  his 


BUSINESS  PROFITS 


169 


"betters."  The  prklo  of  commanding  the  services  of  others, 
the  instinctive  craving  for  external  marks  of  distinction  and 
superiority,  have  lx>on  gratified  in  modern  times  most  commonly 
and  most  readily  through  money-making. 

Other  motives  also  have  played  their  part.  A  true  tast(>  for 
the  refinements  of  an  easier  and  ampler  life,  an  appreciation  of 
what  is  intrinsically  and  permanently  beautiful,  has  sometimes 
been  a  motive  to  pecuniary  gain ;  tliough  it  is  to  be  suspected  that 
genuine  feelings  of  tlii>  sort  arc  less  common  among  Ihc  l)usiness 
men  themselves  than  among  their  dcsci'iulants,  and  not  too 
common  among  the  latter  The  love  of  power,  which  is  closely 
allied  to  tlie  instinct  of  emulation,  is  a  strong  spur  to  unceasing 
accumulation.  .Mere  megalomania  somctimis  appears  among 
the  captains  of  industry,  —a  desire  to  b- mg  larger  and  larger 
domains  under  subjection.  With  all  this  goes  the  impulse  to 
activity.  Idleness  soon  jialls..  Many  a  biisiMcis  man  whose 
wealth  far  exceeds  the  ambition  of  his  early  days  continues 
none  the  le.ss  to  scheme  and  to  work,  from  lack  *.i  anything  else 
to  do.  He  has  learned  to  play  the  engrossing  game  of  money- 
making;  he  lan  pla\  no  other  tliat  satisfies  him  for  long;  he 
.•ontinues  to  make  money  in  order  to  escape  being  lM)red. 

The  desire  for  wealth  which  possesses  the  business  class  is  thus 
not  a  simple  motive,  but  one  very  complex.  It  is  nuich  to  be 
wished  that  other  and  nobler  motives  could  be  sul)stituted,  and 
that  the  same  courage,  judgment,  and  strenuous  work  could  be 
brought  to  l)ear  for  rewanU  of  a  different  sort,  and  with  less  un- 
welcome conse(|uences  in  the  iin  (|ualities  of  \\orldly  |)ossessions. 
Something  of  the  sort  i-^  dre.amed  of  as  feu-Jile  by  those  who 
would  comph'tely  overturn  I  lie  iey;iine  of  private  jiroperty.  Not 
high  money  gains,  but  ;i  ribbon,  a  laurel  wreath,  the  spur  of 
fame,  should  sutlice  to  eall  out  the  best  eneritjes of  the  industrial 
leader.  What  may  be  tlie-e  po  ,>ibililies,  we  sh.ill  have  occa- 
sion to  consider  elsewhere.'  f'rrtain  il  i>  thai  in  the  |)iisl  the 
coarser  motives  have  mainly  prevailed.  In  them  and  ui  their 
power  ainonu:  the  ina--  of  mankind  is  the  psyelxtloirieal  lever 
's,r  HmoIv  \  II,  cIkipIitCV  |:t. 


170 


THE  DISTRIBUTION  OF  WEALTH 


v  I 


which  explains  the  great  upward  efonomie  movement  of  the 
last  two  centuries.  It  is  i)robable  that  motives  of  the  same  sort 
will  long  continue  to  operate,  and  will  long  continue  to  be  in- 
dis])ensablc  for  sustained  material  progress.  The  business  man 
as  we  know  him,  with  his  virtues  and  his  faults,  his  good  effects 
<m  society  and  his  evil,  will  long  iie  with  us.  Business  profits 
will  long  be  a  factor  of  the  first  importance  in  the  distribution 
of  current  (>arnings  anil  in  the  shaping  of  social  stratification. 

§  7.  By  way  of  bringing  into  sharper  relief  some  of  the  con- 
clusions reached  in  this  chapter  and  those  preceiling,  let  us 
make  two  extreme  supjwsitions :  first,  that  capable  business 
men  of  the  highest  order  are  very  plentiful ;  second,  that  stout, 
able-bodied,  unskilled  lal)orers  are  very  scarce.  In  other  words, 
let  us  supjjose  that  the  conditions  of  supply  for  these  two  sorts 
of  social  service  are  precisely  the  reverse  t)f  what  they  are  at 
present. 

If  capable  business  men  were  very  plentiful,  every  species  of 
enterprise  would  be  conducted  with  the  utmost  juilgment,  vigor, 
and  intelligence.  The  smallest  retail  shop  would  be  managed 
with  the  same  ability  as  the  largest  trading  or  manufacturing 
c«)ncern.  At  present,  the  highest  ability  is  turned  to  those  great 
etitcrprises  in  which  it  tells  most ;  precisely  as  central  sites  in 
cities  are  turned  to  those  kinds  of  business  for  which  their  ad- 
vantages tell  most.  With  an  indefinite  supply  of  first-rate  busi- 
ness ability,  this  sort  of  human  power  would  be  directed  not  only 
to  those  chntmels  in  which  it  was  most  efi'ective,  but  to  others  in 
which  it  was  less  effectiv(>.  The  gain,  or  addition  to  the  output, 
resulting  from  its  ajiplicatiou  under  the  least  favorable  circum- 
stances, in  other  words,  from  its  nmrginal  efRciency,  —  would 
determine  the  remuneration  for  all  persons  having  such  capac- 
ity. We  may  a,ssume,  I'or  simplicity's  sakr,  all  these  to  be  of 
equal  cai)acity.  In  the  next  chapter,  t he  consequences  of  dif- 
tVrcnces  among  them  will  Ite  con>iilt're(l ;  for  the  present  argu- 
ment, it  is  not  material  whether  we  assume  complete  e(iiiality 

5-.!-  a-hriit   -'>?ne  ditYers'SVe^i  iif  tj'.'irree        \\\  tl'.n:;'  of  h.iir!'.  <'!!ici'.'!icy 

would  be  immiiisely  more  |)lentifiil  than  men  of  similar  aliility 


BUSINESS   PROFITS 


171 


now  are,  and  their  gains  would  he  very  much  less  than  are  now 
the  gains  of  such  men. 

The  general  efficiency  of  all  the  labor  of  society  under  such 
conditions  woukl  he  very  much  greater  than  it  now  is.  Every 
business,  from  the  largest  factory  to  the  small(>st  shop,  would  ho 
so  managed  as  to  secure  the  utmost  return  for  every  scrap  of 
expenditure.  All  goods  and  services  would  be  more  plentiful. 
Rut  the  share  going  to  business  men  would  be  le>s.  If  we  con- 
ceive the  process  to  be  carried  to  its  farthest  limit,  and  good 
business  men  to  he  as  plentiful  as  commo',  unskilled  laborers 
now  are,  their  reward  wou'd  be  on  '.cry  much  the  same  level  as 
that  now  current  for  coiiunon  day  wages. 

Turntotheothersupposition.  Supi)osetlie  human  race  vastly 
deteriorated  in  its  physirpie  ;  tlie  great  majority  of  men  incapable 
of  hoMing  the  plow  or  lifting  the  pick.  Then  th(>  i'cw  who  were 
still  able  to  perform  sustained  manual  labor  would  receiv(>  high 
rewards.  No  kind  of  labor  is  so  little  to  1h>  dispensed  with.  As, 
in  the  days  of  Achilles,  the  huge  warrior  was  the  admired  hero, 
so  in  a  soci(>ty  where  common  labor  was  scarce,  the  much-envied 
person  would  he  the  brawny  workman.  He  would  be  highly 
paid,  l)ecause  the  marginal  utility  of  his  labor  would  l)e  great ; 
and  that  which  is  scarce  ami  is  i);iid  for  at  a  high  rate  couunanda 
general  esteem.  No  doubt,  the  nniscular  laborer  would  look 
down  with  contempt  on  the  rest  of  mankiud,  dependent  as  they 
would  he  on  him  for  the  necessaries  of  existence;  precisely  as 
t!ie  capitalist  business  m;ui  now  rciinrds  with  contemjit  the  day 
laborer,  dependent  on  him  for  the  opportmiity  to  mak(>  a  living. 
Social  .stratification  would  be  turne(I  topsy-turvy. 

Brains  being  scarce  by  natui'c,  such  a  complete  reversal  of 
positions  is  beyond  the  range  of  possibility.  Hut  some  approach 
to  a  position  midway  between  the  extremes  is  not  irK-onci  .vable. 
Husiness  ability  may  become  niu'-h  more  conunon  than  it  is 
now.  In  the  couise  of  generations,  the  supplies  of  the  dilTerent 
sorts  of  productive  capacity  may  he  greatly  changed  ;  .and  then 
'■'■•■•  varnttioii-  ui  tartiiii^ri,  r.in]  tl;r  ennsrquent  dirnnMires  in 
social  station,  nniy  be  correspondingly  changed. 


'*    i 


If  \ 


»f 


CHAPTER  50 

Business  Puokits,  continued 

§  1.  In  the  preceding  chapter  the  earnings  of  business  men 
have  been  .reated  chioHy  in  their  bearing  on  the  problems 
which  are  connected  with  differences  in  wages  and  with  the  social 
consequence's  of  such  differences.  Wi  may  proceed  now  to  the 
relations  between  profits  on  the  one  hand,  and  rent,  wages, 
and  interest  on  the  other;  and  to  various  ways  of  making 
money  that  are  doubtfully  to  be  classed  under  the  head  of 
business  profits. 

An  analogy  between  business  profits  and  rent  has  often 
been  pointed  out.  High  capacity  in  a  business  man  is  like 
high  productiveness  in  a  site.  The  effectiveness  of  the  labor  and 
capital  managed  by  a  capable  man  is  greater  than  that  of 
lal)or  and  capital  managed  l)y  one  le.ss  (■ai)able ;  just  as  labor 
applied  on  good  soils  yields  more  than  l.-ibor  applied  on  poor 
soils.  If  there  were  an  in<lefinitely  extensible  supply  of  able 
business  men,  no  one  of  them  could  secure  high  earnings.  In 
the  same  way,  good  land  could  not  yield  a  rent  if  th(>re  were 
an  indefinite  supply  of  it.  This  mode  of  treating  business 
profits  was  developed  most  systematically  and  emphatically  by 
Francis  A.  Walker,  and  it  l)ecame  a  corner  stone  of  his  theory 
of  distribution. 

The  same  analogy  exists  in  the  differences  between  the 
earnings  of  men  of  varyinu;  gifts  in  other  occupations.  The 
talented  surgeon  or  physician  earns  n\ore  tlian  his  colleagues 
because  lie  is  more  efficient  ;  and  so  the  lawyer,  the  engineer, 
the  architect.  In  any  group  of  men  who  compete  with  each 
other  id  tin-  same  ^ort  of  Work,  the  uiorc  cfrniitil  that  is, 
the  more  productive  —  earn  more  in  pro|)ortion  to  their  effi- 

172 


BUSINESS  PRO!  ITS 


173 


I 
I 


ciency.     So  far  as  the  differences  are  due  to  inborn  gifts,  the 
results  are  in  the  nature  of  rent. 

To  this  it  has  been  of)jected,  most  effectively  by  Professor 
Marshall,  that  allowance  should  be  made  for  the  element  of 
risk,  and  that,  when  such  allowance  is  fully  made,  the  analogy 
to  rent  is  shorn  of  most  of  its  significance.     Though  there  are 
successful  lawyers,  there  are  also  briefless   barristers.     When 
there  are  l)lanks  as  well  as  prizes,  it  may  well  hapi)en  that  the 
prizes  do  not  suffice  to  offset  the  blanks,  and  then  the  earn- 
ings in  the  occupation  as  a  whole  contain  no  suri)lus,  and 
there  is  no  ele-nent  of  rent.     This,  it  is  said,  is  peculiarly  the 
case  with  bu>^iness  profits.     Success  in  business  is  highly  un- 
certain.    Prediction  as  to  any  individual  who  enters  it  is  ex- 
tremely difficult,   especially  in   the  early  stages  of  a   career. 
It  has  been  supposed  ihat  only  one  tenth  of  those  who  try  to 
establish  businesses  of  their  own  succeed  in  the  end.     The  esti- 
mate is  but  guess  work,  and  very  likely  exaggerated.     But  it 
points  to  a  fact.     In  view  of  the  risks  and  the  obvious  pos.si- 
bilities  of  failure,  must  there  not  be  soii.e  prizes  to  maintain 
the  resort  to  the  occupation?     When  r(>gard  is  had  to  business 
work  as  a  whole  and  l)usiness  profits  as  a  whole,  can  the  high 
reward  of  the  fortunate  few  be  regarded  as  a  real  surplus? 

There  is  weight  in  the  objection ;  but  it  is  not  conclusive. 
It  is  true  that  business  ventures  are  uncertain  as  to  their  out- 
come, not  only  because  it  is  of  their  essence  to  assume  risks, 
but  because,  for  new  aspirants,  it  is  peculiarly  difficult  to  say 
in  advance  whether  they  possess  the  qualities  which  fit  them 
to  meet  and  overcotn."  the  risks.  (In  the  other  hand,  the  extent 
of  the  risks  assumed  is  easily  exnggerated.  The  very  fact  that 
no  previous  expensive  training  is  required  lessens  the  sacrifices 
and  disappointments  of  tlioM'  wlio  try  and  fail.  True,  they 
may  lose  some  of  tlie  means  which  they  owneil  or  which  have 
been  intrusted  to  them;  and  this  loss  is  sometimes  large. 
Usually,  however,  th(>  firs)  steps  in  business  are  on  a  modest 
scale,  and  experiment  on  a  modest  scale  suffices  to  test  whether 
there   is  the  requisite  ea|)acity.      If  there  is  failure,  the  im- 


174 


THE  DISTRIBUTION  OF  WEALTH 


lucky  aspirant  falls  back  into  the  ranks  of  the  hired  class, 
and  becomes  a  clerk,  l)ookkeeper,  superintendent.  His  earn- 
ing power  is  less  than  he  had  hoped,  but  it  is  not  reduced 
to  nil. 

There  may  seem  to  l)e  a  differenco  in  this  regard  between 
the  business  calling  and  the  professions  tliat  require  set  train- 
ing.    The  expensive  and  elaborate  preparation  for  a  l(>gal  career 
may  prove  to  have  been  thrown  away.     Tlie  would-be  lawyer 
may  not  have  it  in  liim  to  attain  success  in  tlie  law.     But  the 
risk  of  this  in  most  professions  is  not  comparable  to  the  risk 
of  failure  in  active  Inisiness.     Ordinarily,  he  who  has  a  good 
training  for  a  profession  is  reasonably  sure  of  getting  a  living 
from  its  practise.     He  may  not  win  one  of  the  i>rize ;,  but  he 
is  likely  to  secure  a  modest  income,  sufficient  to  make  the 
investment  in  his  education  worth  while.     Such  is  the  situation 
as  to  physicians,  engineers,  architects,  teachers.     The  risks  are 
perhaps  greater  in  t!H>  law.  as  the  jjiizes  are  also  greater.     Great 
pecuniary  success  in  the  law  deix'uds  not  only  on  high  intel- 
lectual qualities,   but   on  the   l)usiness  qualities  also.     Some 
professions  there  are,  again,  for  which  a  long  and  elaborate 
preparation  is  required,  ami  in  which  the  outcome  is  yet  highly 
uncertain.     Painting,    the    composition    and    pcTformance    of 
music,  opera  singing,  are  such.     Considerable  iiromise,  and  the 
presence  of  a  true  vein  of  talent,  may  yet  not  prevent  eventual 
failure  in  tiiese  arts;   for  only  a  very  high  pitch  of  al)ility  and 
achieveineivt    brings   a   valued    success.     Even   here,    there   is 
usually  tlie  huntdruin  routine  of  teaching  to  fall  liack  on, — 
sadly  disai)pointing  to  tlie  ambitious  artist,  Init  u.sually  sufficing 
to  eke  out  a  living.     In  any  case,  the  artistic  callings  are  ex- 
ceptional, resorted  to  by  comparatively  few  and  affected  largely 
by  other  motives  than  those  ordinarily  leading  men  to  their 
choice  of  a  care(>r.     On  the  wholt>,  in  tiie  so-ealled  profcs.sion.s, 
the  risk  of  failure  U  not  great.     Investment  in  an  education 
asually  brings  its  return. 

Thus,  for  somewhat  dilterent  reasons,  tiie  element  of  risk 
does  not  play  so  vital  a  part,  either  in  business  or  in  the  pro- 


BUSINESS  PROFITS 


175 


fessions,  as  to  neutralize  the  significance  of  individual  diiTer- 
cnces  in  earnings.  In  business,  the  initial  stake  is  not  so  great ; 
in  the  professions,  the  winning  of  a  fair  return  is  not  so  uncer- 
tain. Some  men  are  born  more  capable  than  others,  and  the 
higher  range  of  thoir  earnings,  due  to  unusual  gifts,  is  analogous 
to  rent.  Since  inborn  difference's  play  a  relatively  more  im- 
portant part  in  business  jirofits  than  in  other  earnings  of  the 
well-to-do,  the  analogy  to  rent  is  closer. 

But  this  sort  of  reasoning  can  throw  light  only  on  the  dif- 
ferences of  business  profits,  and  especially  on  that  upper  range 
of  incomes  to  which  hitherto  we  have  chiefly  given  attention. 
In  the  lover  ranges  of  business  earnings  as  m-cII  as  of  proft  s- 
sional  earnings,  the  for;'esat  work  are  the  same  as  those  govern- 
ing wages  in  general.  Hence  the  rent  theory  of  i)rofits  eun 
throw  no  light  on  the  fundamental  que.stions.  These  are  in- 
extricably connected  with  the  general  problem  of  wages. 

§  2.  The  differences  in  the  abilities  of  busim^ss  men  engaged 
in  the  same  occupation  constitute  the  main  explanation  of  a 
phenomenon  which  has  i)uzzled  many  observers,  — the  varia 
tions  in  the  expenses  of  production  between  competing  es- 
tablishments. In  the  discussion  of  value,'  W(,>  considered  in(iu,s- 
tries  having  constant  returns  and  conunodities  whose  value  is 
determined  by  exi)enses  of  produ.lion  uniform  for  all  competi- 
tors. But  it  has  been  repeatedly  jioint-  I  .uit  that  in  fact  no 
such  uniformity  exists.  In  no  considers;  ie  i  dustrv  of  modern 
times  are  competitors  on  the  same  plaui  uoe  '  luce  more 
cheaply  than  ollu-rs,  having  l.etter  plant      heti  ^aiiization, 

command   of   more   eflicicMit    or   che.Mpcr   iubur         of   cheaper 
materials,  more  "strategic"  location. 

If  such   differences   were  permanent    and   w  '.-■    i\    y 

would  bring  all  industries  into  the  class  of  dii,,  .rns, 

and  would  make  the  principle  of  rent    applic-  .Jly. 

But  they  are  not  pennanent   or  inialterabje,  e\-,  .,  i,,,-  ;,s 

good  sites  or  cheap  raw  ..laterials  are  liniite<l.     \)     '  .     tlie 
circumstances   which    an;   commonly    referred    t<-  >h>\\    ig 

'  SccHdokU,  ClmpttT  IJ. 


J 


I  f 
f 


i      4 


n»  5 


II 


} 


if! 


176 


THE  DISTRIBUTION  OF  WEALTH 


wherein  different  enterprises  have  varying  expenses  are  due  at 
bottom  to  the  personal  qualities  of  their  business  leaders.  If 
some  have  better  plants  or  more  advantageous  locations  than 
others,  it  is  because  they  have  been  planned  with  greater  skill 
and  foresight.  Especially  under  those  conditions  of  rapid 
advance  in  the  arts  which  characterize  modern  times,  oppor- 
tunities for  improvements  in  the  industrial  outfit  are  first 
availed  of  with  shrewdness  and  daring  by  the  captains  of  in- 
dustry, and  then  imitated  by  others  of  less  though  still  of  notable 
capacity.  When  the  great  mass  of  those  engaged  in  a  given 
industry  succeed  in  adopting  the  improvement  of  the  leaders, 
these  leaders  devise  still  further  improvements;  and  the  dif- 
ferences in  facilities  and  expenses  of  production  are  thus  main- 
tained indefinitely. 

To  fit  this  situation  into  our  reasoning  on  values  and  ex- 
penses of  production,  we  may  adopt  Professor  Marshall's  notion 
of  the  "representative  firm," — one  not  far  in  the  lead,  not 
equipped  with  the  very  latest  und  best  plant  and  machinery, 
but  well  equipped,  well  led,  an  1  able  to  maintain  itself  perma- 
nently with  substantial  profits.  Side  by  side  with  such  repre- 
sentative firms  are  the  exceptional  leaders.  Side  by  side  with 
them  are  also  the  weak  and  the  struggling,  —  some  under  inept 
management  and  doomed  to  failure,  and  others  under  good 
management  but  still  in  the  early  stages  of  scant  capital  and 
unestablished  connection.  Prices  tend  to  adjust  themselves 
to  the  expens'  •  of  production  at  the  hands  of  the  representa- 
tive firm.  Wiu-n  conditions  are  normal  and  settled  in  the 
industry,  that  firm  earns  "fair"  profits,  —  such  business  profits 
as  business  men  of  good  ability  secure  in  industry  at  large. 
Their  superiors  earn  much  more.  Their  inferiors  earn  less; 
perhaps  go  to  the  wall,  perhaps  rise  slowly  to  better  fortune. 

If  now  an  ill  turn  is  encountered  by  such  an  industry,  —  if 
demand  should  suddenly  fall  olT,  lir  heavy  taxes  should  be  im- 
posed l>\  the  state,  — the  first  effect  will  be  to  cause  the  weak 
and  stiu-j filing  firms  to  disappear,  the  representative  firms  to 
lose  money  or  at  least  fail  to  make  money,  the  leading  firms  to 


BUSINESS  ?      >;'ITS 


177 


submit  to  lessened  profits.     The  ultimate  effect  will  be  that 
some  of  the  representative  firms  will  withdraw,  some  perhaps 
will  fail.     Some  of  the  leaders  will  transfer  their  energies  into 
other  directions.     Indeed,  a  keen  eye  for  the  pro.^iK'cts  of  an 
industry,  a  shrewd  selection  of  those  industries  about  to  enter 
a  period  of  prosperity  and   a  quick  abandonment  of  those 
threatened  with  reverses,  are  among  the  qualifications  of  the 
money-maker.     The  converse  takes  place  if  an  industry  has  a 
good  turn,  through  an  unexpected  increase  of  demand,  or  a 
sustained  cheapening  of  its  raw  materials.     Then  every  one 
engaged  in  it  makes  mon'-y,  even  the  ill-equipped.     The  able 
and  well-equipped,  who  happen  to  be  in  the  l)est  condition  for 
taking  advantage  of  the   favorable  conditions,   may   roll   up 
fortuaes  in  short  order.     ITow  soon  and  how  easily  the  read- 
justment to  normal  conditions  will  take  place  depends  on  the 
extent  of  the  irrevocably  invested  plant,  on  the  predictability 
of  demand,  and  in  .som<'  degr(>e  on  th(>  personal  characteristics 
of  the  active  leaders  in  the  industry.     As  in  all  matters  that 
depend  on  human  impulses  and  human  calculations,  no  me- 
chanical regularity  in  the  phenomena  is  to  be  expected.     It  is 
only  in  the  long  run  that  al)le  business  meti  secure  incomes 
in  accord  with  their  ability;    it  is  only  in  the  long  run  that 
they  and  their  imitators  transfer  their  energies  from  unpros- 
perous  to  prosperous  industries;    it  is  only  in  the  long  run 
that  the  representative  firm  and  its  expenses  of  production 
prove  to  have  a  dominatiris;  effect  on  the  range  of  prices. 

§  3.  The  differences  between  individual  producers  have  not 
only  an  analogy  to  rent,  but  have  tlieir  effects  on  rent  and  on 
distribution.  A  capable  business  nuin  who  happens  to  own 
an  advantageous  site  may  be  said  to  get  two  sorts  of  rent,  — 
that  from  the  exceiitional  site  and  that  from  his  exceptional 
ability. 

We  might  expect  these  two  sorts  of  gain  to  f)e  quite  dis- 
connected. The  able  man,  it  would  seem,  can  apply  his  .•ibility 
at  the  margin  as  well  as  above  the  margin.  In  fact,  he  usually 
applies  it  above  the  margin.     One  of  the  manifestations  of 

VOL.  II  — N 


178 


THE  DISTRIBUTION  OF  WEALTH 


^H 


111 


r 


i 


ability  is  tho  prompt  and  full  perception  of  the  possibilities  of 
the  good  sites.  They  usually  get  under  the  control,  by  purchase 
or  by  lease,  of  the  capable  managers,  and  are  exploited  to  better 
advantage  by  these  than  they  would  be  by  the  less  capable. 
In  agriculture,  the  better  fanners  liuy  or  rent  the  better  lands, 
and  secun;  a  conilmied  rent  of  al)ility  and  of  fertility  (or  situa- 
tion) greater  than  could  lie  secured  by  ability  alone  or  by 
fertility  alone.  This  is  strikingly  the  ca.se  as  to  urban  rent.  The 
expensive  business  sites  are  ahno.st  invarial)ly  utilized  by  the 
ui)per  tier  of  business  men,  —  ilie  captains  of  industry  and 
the  solid  merchants  of  the  great  cities.  The  more  exix'nsive 
the  site,  the  more  likely  is  it  to  b(<  in  the  h.ands  of  a  man  of 
exceptional  gifts.  There  is  a  sort  of  pitting  against  each 
other  of  two  kinds  of  rarities,  —  (he  sites,  and  the  men.  If 
business  men  of  marked  ability  are  very  numerous,  they  l)id 
against  eiK-h  o,...'r  for  the  central  sites  and  urlian  rent  rises 
to  a  level  by  so  much  hii;Mer.  If  there  are  fewer  of  them, 
they  are  al)le  in  greater  degree  to  retain  in  their  own  hands 
the  gains  which  can  be  reape(l  on  those  sites. 

One  word  more  as  to  the  resemblance  between  business 
profits  and  rent.  All  differences  in  wages  which  result  from 
the  existence  of  non-competing  groui^s  and  which  thu.s  are  not 
of  th<'  ('([ualizing  sort,  may  !>(>  said  to  b(>  analogous  to  rent. 
The  carpenter  earns  more  than  the  day  laborer  liecause  the 
supply  of  liis  services  is  limited,  and  because  the  utility  cf  his 
services  is  greater.  There  is  thus  in  all  real  dilTeren<'es  of 
wages  an  elen\ent  similar  to  rtnt.  Hut  theri>  is  an  imi)ortant 
distii\ction  between  thes(>  cases  an<l  the  rent  of  natural  agents. 
In  the  one,  hmnan  action  ami  human  moliv(>  are  alone  in 
operiition;  in  the  other,  nature's  limitations  are  the  essential 
factor.  The  carpenter  and  'he  business  nuin  put  forth  their 
powers  because  of  a  reward,  ami  arc  stinuilated  to  put  them 
forth  the  more  as  reward  beinmes  higher.  The  dilT(>rences 
between  good  sites  and  bad  ^ius  are  irrespective  of  such  motives. 
Atid  in  its  social  aspects  this  distit\ction  is  all-important.  It  is 
not    impracticaltle    for   sm-iety    to   ajipropriate    in    some   way 


qp 


BUSINESS  PROnTS 


179 


economic  rent  and  monopoly  gains.  But  the  appropriation  of 
the  extra  gains  which  human  Ijcings  secure  i)ecause  of  their 
possession  of  unusual  faculties  would  check  the  exercise  of 
those  faculties.  It  would,  perhaps,  he  goiiiK  too  far  to  say  that 
it  would  quite  iirei'cnt  their  exiTcise.  Other  motives  than 
those  of  pecuniary  gain  may  coiiceival)ly  he  made  more  efl'ective 
than  now.  But  as  men  are,  and  as  private  property  and  com- 
petition influence  them,  nearly  all  need  the  spur  of  material 
reward  to  bring  into  full  exercise  their  aMlitics.  The  extra 
gain  is  a  price  which  society  must  pay  in  order  to  secure  the 
extra  service. 

§  4.    If  business  profits  are  in  som(<  respects  analogous  to  rent, 
they  are  in  other  respects  closely  related  to  interest. 

We  have  tacitly  assumed  that  so  much  only  of  a  business  man'H 
income  is  to  be  r<garded  as  protits  as  is  in  excess  of  intcTJst  on  the 
capital  which  he  manages.  If  he  happens  to  borrow  his  capital, 
this  is  clearly  true.  He  then  pays  int(<rest  to  another,  and  only 
his  net  (arnings  over  and  above  interest  go  to  him  as  busines.s 
profits.  I'sually  his  capital  is  partly  bornivcd  and  partly  his 
own  (or  that  of  relatives  or  friet\ds,  put  at  his  disposal  from  other 
than  cold-blooded  pecuniary  motive-).  On  that  part  which 
is  his  own,  he  must  indeed  remember  that  interest  could  be  got 
at  current  rates  without  the  risk  and  lalorof  actual  management; 
and  therefore  he  must  reasonal'ly  rec  kon  only  the  excess  over 
such  interest  as  his  earniuLrs  of  niaiiagenient  or  business  profits. 
This  way  of  regarding  the  situation  is  followed  in  an  arrange- 
ment found  in  many  firms  which  ha\c  silent  or  iiiaelive  partners. 
Out  of  the  net  eiirningsof  a  given  period,  say  a  year,  interest  io 
first  allowed  on  the  capital  put  in,  whether  by  the  a<'tive  f)artnerH 
or  by  the  othi>rs.  The  eseess.  afl<r  paying  nil  int(  rest,  then 
constitute^*  the  business  pmlits  proper.  Out  of  Ibis  there  is 
first  allotteil  a  fixed  payment  in  the  nature  of  salary  to  the  active 
partners,  '{'he  renniinder  is  divided  between  jictivc  ,ind  in- 
active partners  in  proportion  to  cjipital  provided  by  tlieri,  and 
conHtitutcH  a  return  for  risk,  ueneral  oversi/rht.  and  jud.LMiunt. 

Such  a  sharp  distim-tion  lietween  the  constituent  part?*  of  growi 


■99 


mr 


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180 


THE   DISTRIBUTION  OF  WEALT.' 


profits  is  of  course  more  likely  to  be  made  wIk'i^  there  is  a  cor- 
responding division  of  functions,  —  where  some  provide  the 
capital,  others  do  the  active  work  of  management;  where  some 
share  the  risks,  others  do  not.  In  tne  eighteenth  century  the 
common  form  of  business  organization,  the  private  firm  or 
partnership,  was  not  such  as  to  suggest  th(>  distinction.  Then 
the  investor,  the  person  looking  to  a  return  in  the  way  of  in- 
terest only,  had  little  to  do  witli  busiiuvss ;  his  investments  were 
in  land  or  in  public  funds.  The  business  man  borrowed  oc- 
casionally from  banks  or  professional  money  lenders,  but  had 
no  permanent  sissociates  divorced  from  the  management. 
Hence  the  economists  of  those  days  regarded  business  profits  as 
one  homogeneous  return  secured  by  mercliants  and  capitalist 
employers.  Among  the  Bntisli  economists,  this  mode  of  treat- 
ment continues  nearly  to  our  own  day.  Adam  Smith  regarded 
gross  profits  as  the  returi-  i)oth  to  capital  and  to  the  managers  of 
capital.  He  remarked  that  d()ul>le  interest  was  regarded  as  a 
fair,  moderate,  reasonable  profit.  High  pre, fits  and  high  in- 
terest W(>nt  together:  and  he  adduced  the  historical  fluctua- 
tions in  interest  as  mdicative  of  the  fluctuations  in  profits. 

In  mod(>rn  times  the  growth  of  corporations  has  brought 
about  a  vast  participation  by  investors  in  business  enterprises, 
a  division  of  function  between  business  men  and  investors,  and 
hence  greater  attention  to  the  really  dilTerent  nature  of  tlieir 
doings  and  earnings.  .Many  cor|>orations  borrow  on  long  time 
in  the  form  of  IhukIs,  whose  holders  are  supposed  to  Ix  free 
from  risks  and  to  nceive  pun-  interest,  while  yet  they  are 
permanently  asMxiated  with  the  enterprise.  The  holders  of 
stock  ace  sonietli..ig  more  tlian  iiive.tors  pure  and  simple.  They 
aro,  in  a  way,  silent  partners;  they  exercise  judgment  iiiid  as- 
sume risk.  The  actual  work  of  management  is  in  the  liaixls  of 
salaried  m.'iiiagers,  who  in  addition  may  or  may  not  be  stock- 
h<tld(>rs. 

This  relation  l)etween  the  dilTerent  |)er.sons  conc«'rned  appears 
most  clcjirly  in  the  early  stages  of  enterprises,  especially  of  large- 
scale  enti'rprises.     The  investor  who  is  hH>kinK  for  a  return  in 


BUSINESS  PROFITS 


181 


the  way  of  interest  pure  and  simple,  does  not  take  shares  in  new 
undertakings;    he  buys  "solid"  bonds.     Those  who  "go  in" 
for  new  ventures  are  largely  the  experienced  business  men  and 
the  clientele  w  liich  such  business  men  gather  about  them.    They 
"go  in"  largely  on  their  judgment  of  men.     If  John  Smith, 
whom  they  believe  in,  fathers  a  sclienie,  they  often  take  shares 
without  very  deliberate  consideration  of  the  prospects.     They 
expect  to  secure  more  than  interest  on  what  they  invest ;  otlier- 
wise  they  would  not  as.sume  the  risks.     As  time  goes  on,  if  the 
venture  has  i)roved  successful,  and  dividends  at  a  good  rate  have 
been  secured  for  a  considorabie  period,  they  sell  out  to  investors 
at  a  premium.     If  the  enterprise  is  then  a  thoroughly  settled 
one,  these  investors  may  take  virtually  no  risks,  and  their  return 
does  not  exceed  bare  interest ;  though  some  degree  of  risk,  even 
if  slight,  is  not  to  be  avoided  in  holdings  of  stock.     The  active 
business  man  or  venturesome  investor  who  has  thus  .sold  out  at 
a  profit  then  turns  to  still  otiier  new  enterjjrises,  and  may  repeat 
the  process  indefinitely.     His  returns  are  to  be  considered  as,  in 
the  long  run,  mainly  l)usiness  profits,  while  those  of  the  investor, 
whether  bondholder  or  owner  of  "niit-edgeil"  stocks,  are  mainly 
interest,  with  some  admixture  of  capitalized  rent  and  monopoly 
gains. 

§  5.  For  short  periods,  even  for  periods  of  considerable  length, 
business  profits  and  interest  arc  often  clo.sely  connected.  Large 
command  of  capital  conunonly  brings  to  an  imliviiiutd  enter- 
prise not  only  returns  in  the  way  of  interest  proportionate  to 
the  amount  of  capital,  but  a  better  chance  for  large  profits.  For 
capital  in  general,  llie  same  circuiustane(>s  that  lead  to  high 
returns  for  the  i)usiiiess  nuin  lead  to  high  returns  for  the  in- 
vestor also. 

For  an  individual,  the  largr-r  or  ..mailer  cai>ital  which  is  at  his 
command,  and  the  coiiscnuciit  larger  or  smaller  scale  of  opmi- 
tions,  have  an  important,  apitarently  a  d(>.tninating,  inlluenccou 
his  net  earnings.  Those  who  produce  or  s(>ll  smaller  (luantitics 
get  the  same  prices  as  those  prodncinir  or  selling  srrcutfr  rinim- 
tities.     The  expenses  per  unit  of  the  large-scale  producer  t)r  mer- 


111 


!    '. 


ItA         I 


182 


THE  DISTRIBUTION  OF  WEALTH 


chant  are  usually  less  than  those  of  his  smaller  rival.     It  seems 
to  follow  that,  merely  because  he  has  more  capital,  his  gains  are 
larger.     If  the  management  of  a  great  business  called  for  no 
more  aljility  than  that  of  a  small  one,  and  if  the  command  of  abun- 
dant capital  came  solely  l)y  inheritance  or  favor,  tiie  conse- 
quence would  certainly  follow.     But  in  the  long  run  the  connec- 
tion between  extent  of  cai)ital  and  volume  of  profits  proves  to  be 
by  K    means  automatic.     Large-scale  operations  require  more 
executive  capacity,  more  insight  and  judgment,  more  courage, 
than  small.     Command  of  capital  comes  in  the  end,  not  by  ac- 
cident, but  according  to  ability.     At  the  start,  and  in  ordinary 
times,  it  is  as  easy,  or  at  least  seems  as  easy,  to  manage  a  large 
business  as  a  small  one.     Hence  the  importance  of  capital  ami 
connection  in  the  earlier  stages  of  every  i)usincss  man's  career. 
Hence,  too,  the  more  enduring  influence  of  capital  and  connec- 
tion in  those  businesses  which  never  reach  a  very  consideralilo 
scale,  or  never  get  beyond  the  simplest  conditions  of  management. 
But  with  almost  ail   enterprises,  as   time  goes  on,  conditions 
change,  new  methods  or  new  processes  are  devised  by  the  keen- 
minded  and  venturesome,  and  adaptation  to  new  competition 
must  take  place.     Then,  only  tlH>  able  and  enterprising  con- 
tinue to  control  large  enterprise.--  ;ind  largi'  capital.     The  less 
capable  fail  to  make  the  profits  they  e.\i)ect.     If,  as  not  infre- 
(piently  happens,  they  persist  in  tryin'j;  to  manage  what  over- 
tops their  cai)acily,  l)ankruptcy  ejisues  and  their  all  is  swejjt 
away. 

Th(>  adju^tnuMit  of  the  scale  of  openitiuns  and  of  consetpient 
profits  1,1  individual  capacity  is  mui'h  alTccteil  by  custom,  es- 
tablishej  reputation,  and  good  will.  \  firm  which  has  been 
built  up  by  an  a!)le  founder  runs  on  for  u  lonii;  time  of  its  own 
MKiint'Mtiini.  Tiiis  is  particularly  true  of  Imdiiig,  itoth  retail 
and  wholesale,  where  connectinu  nwA  reputalinn  count  much  in 
holding  custoiuer  It  \<  ofti-n  true  of  mai.nt'acturing,  where 
fademarks  m.iy  play  an  important  part.  It  is  most  of  all  true 
of  i)anking.  wliere  reputalinn  and  good  will  are  of  iiie  rs^eiuc  ol 
profitable  oi)era(ion.     Hence  those  who  succeed  to  well-i'Htal> 


mmm 


m^m^ 


PPMH 


BUSINESS  PROFITS 


183 


lished  enterprises  can  continue  to  reap  lurge  gains  even  though 
they  have  no  marked  ability.  But  the  dominant  influence  of 
inborn  gifts  shows  itself  in  time.  OKI  firms  decay,  unless  re- 
generated l)y  fresh  blood.  New  firms  rise,  and  a  different  gener- 
ation of  Inisiness  men  comes  into  control.  Among  these  may 
be  the  capable  sons  of  capable  fathers,  inheriting  ability  as  well 
as  capital  and  connection.  Hut  most  of  the  new  men  are  not 
the  descendants  of  the  old.  Tliey  ri^c  by  force  of  character 
from  snudl  beginnings.  Into  their  hands  comes  the  control  of 
large  capital  and  tlie  grasp  of  large  business  jjrofits. 

§0.  The  same  close  connection  over  limited  periods,  and  the 
same  divergence  over  longer  periods,  appear  in  the  relations  be- 
tween interest  as  a  whole  ami  business  profits  as  a  whole.  The 
factor  that  i)roximately  determines  interest  is  the  amount  which 
business  meiv  can  afford  to  pay  and  which  competition  compels 
them  to  i)ay.  The  procc-^s  by  wliieli  the  return  to  capital  is 
settled  works  out  its  results  through  its  influence  on  bu.siness 
profits.  The  advances  to  laborers  are  made  by  the  active  capi- 
talists,—  the  busine-s  men,  —  and  the  ensiiiug  increase  in  the 
output  comes  first  into  their  hands;  I'or  they  act  as  intermedi- 
aries het  ween  the  hired  workmen  and  the  inveslurs.  WhengroKS 
profits  (ill  .\dam  Smith's  sense  of  the  term)  are  high,  they  are 
al)le  and  williug  to  pay  higher  interest  or  higher  wages,  or  both  ; 
and  conversely  they  are  able  to  pay  less  when  gross  profits  ;ire 
low.  Improvements  in  the  arl>  whieh  incre.-ise  the  marginal 
productivity  of  capital  tend  i  i  tlie  (ir>t  instance  to  raise  both 
business  pri)lits  and  interest. 

As  time  goes  on,  however,  ilie  parallel  movement  is  likely  to  be 
modified.  The  mode  in  which  the  gain  shall  be  divided  between 
tlie  two  depends  (Ml  the  coiidil  idir-  of  supjily  foi'  business  capacity 
and  for  investors'  s.u  ings.  If  saviug-i.  and  so  the  command  »( 
capital,  are  abundantly  p>ii  .il  the  Inisiness  man's  disjiosal,  :i 
larger  share  goes  to  his  profits.  If,  on  the  otiu  r  hand,  a  gn  at 
number  of  capable  business  .aspirants  bid  for  the  savings,  a 
larger  simre  goes  to  interest,  it  both  I'apilaland  liusiness  power 
tiro  In  pl(>ntiful  supply,  wages  tend  to  rise;   the  incomes  of  the 


■ffllliinp 


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,   :     \, 


184 


THE  DISTRIBUTION  OF  WEALTH 


possessing  classes  as  a  whole  tend  to  become  lesis,  and  the  in- 
equalities of  wealth  are  by  so  much  mitigated. 

In  modern  times  it  is  probable  that  business  profits  have  suc- 
ceeded in  retaining  a  comparatively  large  share  of  the  gains 
from  the  great  ailvances  in  the  arts.  Savings  and  capital  have 
responded  very  rapidly  and  amply  to  tho  increased  possibilities 
for  investment.  The  rate  of  interest  has  remaineil,  over  long 
periods,  fairly  stable,  notwithstantling  the  enormous  advances 
in  accumulation  and  in  the  utilization  of  capital  since  the  In- 
dustrial Revolution  set  in.  All  the  civilized  countries  have  gone 
through  groat  bursts  of  advance,  during  which  the  productive- 
ness of  labor  has  been  rapidly  increased  and  the  opportunities 
have  been  favoral)le  for  large  gross  profits  and  high  interest. 
Such  was  the  experience  of  England  during  the  first  three  quar- 
ters of  the  nineteenth  century;  of  Germany  during  the  last 
quarter  of  tliat  century  ;  of  the  United  States  during  almost  the 
whole  of  her  history.  Though  interest  has  gone  up  in  all  these 
countries  during  the  accentuated  i)eriods  of  these  movements,  it 
has  fallen  again  with  each  slackening.  But  business  profits 
have  been,  for  those  jiossessing  the  qualities  of  leadership,  large 
throughout,  often  portentously  large. 

§7.  Some  different  views  of  business  profits  —  views  which 
bring  into  deserved  prominence  certain  peculiarities  -  may 
now  be  considered.  They  distinguish  business  profits  sharply 
from  wages.  In  them,  what  a  l)usiness  man  gets  is  regarded  as 
a  comjiosite  income,  even  after  cutting  out  such  share  as  shoulil 
projjcrly  be  regarded  as  cither  interest  or  rent.  Part  of  what  he 
gets  is  thought  to  l)e  simply  wagi's ;  but  part  is  neither  wages, 
nor  interest,  nor  rent  :  it  is  difTerent  from  any  of  these;  and  this 
peculiar  element  is  alone  regarded  as  "profits." 

One  form  of  this  mode  of  dealing  with  the  subject  connects 
itself  with  what  has  just  been  said  of  the  consequences  of  change.-j 
in  the  arts.  Business  |)rofits  are  treated  as  accruing  solely  from 
such  changes.  If  changes  in  the  arts  were  to  cea.se,  if  competi- 
tion were  to  work  out  its  results  perfectly,  if  prices  were  to  con- 
form closely  to  expenses  of  production,  the  managers  of  industry 


BUSINESS   PROFITS 


185 


would  receive  nothingbut  wages,— wages  determined  in  the  same 
fashion  as  other  payments  for  labor.  But  in  a  dynamic  state  — 
a  state  of  unstable  equilibrium,  of  transition,  of  advance  —  there 
is  opportunity  for  business  men  to  secure  something  more.  By 
taking  the  lead  in  utilizing  inventions  or  improving  organization 
they  make  extra  gains,  which  last  so  long  as  they  succeed  in  hold- 
ing the  lead.  Business  profits,  so  considered,  are  ever  vanishing, 
ever  reappearing.  They  are  the  stimulus  to  improvement  and 
the  reward  for  improvement,  tending  to  cease  when  once  the 
improvement  is  fully  applied. 

Whether  the  term  "business  profits"  shouhl  be  thus  limited  is 
primarily  a  question  of  phraseology.  The  emphasis  which  this 
view  puts  on  the  relation  between  improvements  and  the  busi- 
ness man's  gains  is  just.  The  large  and  conspicuous  gains  are 
in  fact  associated  almost  invariably  with  advances  in  the  arts, 
with  boldness  and  sagacity  in  ex[)loitiiig  new  enterprises  and 
new  methods.  None  the  less,  this  mode  of  shari)ly  separating 
business  profits  from  wages  seems  artificial.  Even  the  routine 
conduct  of  established  industries  calls  for  judgment  and 
administrative  capacity,  and  .so  for  the  exercise  of  the  same 
faculties  that  are  more  conspicuously  and  more  profitably 
exercised  under  conditions  of  rapid  progress.  To  separate 
even  roughly  the  earnings  of  a  successful  business  man  into 
two  parts—  one  wages,  the  other  "profits"  in  the  sense  of 
gains  from  progress-  would  seem  to  l)e  quite  impracticable. 
Looking  over  tlic  whole  varied  range  of  earnings  among  those 
engaged  in  the  business  career,  it  is  sinii)lest  to  regard  them  all 
as  returns  for  labor.  —  returns  marked  by  many  peculiarities, 
among  which  the  most  striking  are  the  risks  and  uncertainties, 
the  wide  range,  the  high  gains  from  al»le  pioneering. 

§  8.  Another  view,  in  some  respects  similar,  separates  busi- 
ness profits  from  wages,  by  considering  as  wages  tliat  amount 
which  the  intlividual  would  li.ivc  be(>n  paid  if  hired  l)y  some 
one  else.  An  !nd.'p<"nd<"!!t  hsr-jui'ss  tnim'H  actual  earnings  are 
likely  to  exceed  that  sum  ;  tlie  excess  is  business  profits,  Here 
emphasis  is  put  on  the  element  of  risk.     Profits  dilTer  from 


i> 


I 


^\h 


186 


THE  DISTRIBUTION   OF  WEALTH 


i    >) 


I 


I) 


wages  in  that  they  are  the  result  of  the  assumption  of  risk  and 
the  reward  for  that  assumption. 

The  question  here  again  is  one  largely  of  phraseology ;  but 
underlying  it  is  the  sul)stautial  question  whether  a  satisfactory 
line  of  demarcation  can  be  drawn,  and  "wages,"  in  this  sense, 
really  distingviished  from  "profits."  Salaried  posts  of  manage- 
ment have  a  very  wide  range,  —  foremen,  superintendents, 
general  managers,  presidents.  A  process  of  transfer  is  con- 
stantly taking  place  between  the  salaried  ranks  and  the  in- 
dependent business  managers.  Both  are  affected  by  causes  of 
tlie  same  sort.  A  capable  man  will  make  large  gross  profits 
for  himself,  or  will  be  paid  a  good  salary  if  others  hire  him. 
It  may  even  happen  that  he  will  really  earn  more,  if  hired  by 
others;    he  may  have  executive  ability,   yet  lack  sagacity  and 

judgment. 

The  growth  of  large-scale  operations  and  of  corporations 
has  brought  increasing  employm(>nt  of  salaried  men  in  posts  of 
Icadersliip,  and  also  an  adjustment  of  their  pay  to  the  qualitie:4 
required  for  leiidership.     The  desiral)ility  of  stimulating  salaried 
officials  to  the  best  exercise  of  their  powers  has  led  to  all  sorts 
of  devices.     On  the  continent  of    Europe,   ami  especially  in 
Germany,  Uuitinnit:  are  common,  that  is,  a  share  in  the  profits, 
additional  to  a  M't  salar.v .     In  England  und  in  the  United  States, 
it  is  common  to  pay  tlu>  managing  head  of  a  gr»>at  corporation 
a  very  large  salary  once  for  all,  with  the  tacit  understanding 
that  he  must  make  the  profits  large  eiiougli  to  justify  the  salary. 
If  he  W()ul<l  ke(>p  his  place,  he  must  make  money  for  his  em- 
ployers.    This    is   especially    the   case   in   the    Tnitcd   States, 
where  larger  salaries  are  paid  than  in  ottier  countries,   more 
])ower   and   more   resi)onsil)ility   are   placed    in    the   hands   of 
managers  and  ])residents.  and  more  is  expecti'il   from  theui  in 
tlie  way  of  •'results."     The  extraordinary  sums  jjaid   to  the 
heads  of  great  American  enterprises,       .S.')(),t)(M)  a  year,  S1(M),(KK) 
a  year,  even  more,       though  tlx-y  may  stand  in  son!<>  iiistances 
for  mere  neixitism,  in  the  main  represent  an  endeavor  to  get 
from  salaried  perbons  the  same  keenness  and  ability  which 


BUSINESS  PROFITS 


187 


1 


their  own  immediate  interest  would  bring  out.  There  is  always 
the  possibility  of  the  independent  exercise  of  such  ability,  and 
the  employing  corporations  must  bid  rewards  on  the  same 
scale  as  those  which  it  would  so  yi(>Id. 

This  sort  of  <Je  f<;ctn  profit-sharing  explains  wh., ,  even  under 
corporate  organization,  private  industry  is  usually  more  effi- 
cient, or  at  least  has  greater  prol)ui)ilitios  of  progress,  thai 
public  industry.  It  has  been  maintained  by  eminent  economists 
that  when  once  the  conduct  of  affairs  is  in  the  hands  of  great 
corporations,  the  essential  advantage  of  pri\-ate  industry  is 
lost;  for  such  corporations,  like  government,  must  intrust' the 
^-tua!  management  to  salaried  officials,  hence  l.se  the  spur 
i)f  the  owner's  direct  interest  and  oversight.  But  governments 
cannot  deal  with  officials  with  the  freedom  of  private  corpora- 
tions. They  cannot  pay  salaries  so  high  or  so  elastic ;  sundry 
political  forces  make  it  impracticable.  Though  there  is  a  glitter 
of  fame  from  pui)lic  employment  which  may  enlist  capable  men, 
even  with  a  moderate  salary,  the  same  keen  exercise  of  the 
business  faculties  has  rarely  been  stimulated.  For  the  most 
effective  organization  of  the  forces  of  production,  private 
ownership  and  management,  even  with  salaried  managers,  has 
unquestionable  advantages. 

§0.  The  tenor  of  the  preceding  discussion  has  been  to 
justify  business  profits,  as  due  in  the  main  to  efficiency  and 
ability.  The  eomiaunity  on  the  whole  gets  an  cfiuivalent  for 
the  business  man's  earnings;  indeed,  must  allow  some  such  earn- 
ings, in  order  to  secure  tlie  useful  services  n-ndered.  But  it  is 
often  maintained  that  such  ju-tifiable  earnings  form  only  a 
part  of  business  incomes,  and  that  the  total  ii.coimvs  much  ex- 
ceed the  range  of  worth-while  returns.  The  contention  has 
truth  ;  there  are  illegit  irniite  as  w.'ll  as  legitimate  business  profits. 
To  put  it  in  otIu>r  wonis,  ;,  ,r,)od  dejil  of  "business"  is  unpro- 
ductiv  ;  it  serves  not  to  add  to  the  well-being  of  the  com- 
munity, liut  to  iret  s'.!!nefhi!!s;  n'-v.-iy  fn-.rn  other  j)rr.p!f. 

Sometimes  the  case  is  sirnpl(>.  (ianibling  speculation,  such 
us  that  of  the  "bucket  shop,"  is  clearly  unproductive.     Tor- 


huri 


mmm 


H .  1. 


^ 


'A 


il 


188 


THE  DISTRIBUTION  OF  WEALTH 


rupt  contracts  with  government  officials,  such  as  can  be  sublet 
by  the  corruptor  to  another  who  actually  does  the  work  con- 
tracted for,  are  in  the  same  class.  The  deliberate  manufacture 
and  dishonest  puffing  of  a  noxious,  or  even  harmless,  "patent 
medicine  "  is  to  be  similarly  regarded. 

Commonly,  however,  useful  and  harmful  activity,  legitimate 
and  illegitimate  profits,  go  together.  Take  such  a  case  as  a 
subsidy  obtained  by  corruption  and  not  needed  to  promote 
the  industry  in  question.  The  business  man's  labor  in  secur- 
ing the  subsidy  serves  to  rob  the  public ;  but  his  labor  in 
guiding  the  industry  may  be  effectively  directed  and  in  its 
results  serviceable.  A  consistent  free  trader  would  say  that 
labor  given  to  manipulating  tariff  legislation  in  favor  of  pro- 
tected industries  was  the  reverse  of  productive;  but  the  per- 
sons in  charge  of  the  industries  may  manage  them  well.  An 
employer  may  take  advantage  of  the  helplessness  of  women 
and  children,  of  the  ignorance  and  bargaining  weakness  of  un- 
organized workmen  of  any  sort,  and  may  secure  their  labor  at 
less  than  "fair"  rates;'  at  the  same  time  he  may  organize 
that  labor  with  high  efficiency. 

There  arc  numberless  ways  in  which  the  predatory  exercise 
of  business    power  is   mingled  with   activity  that   is   useful. 
Such  are  fraud  and  adulteration  in  the  making  of  goods ;  vocif- 
erous tooting  of  an  article  no  better  or  worse  than  its  rivals, 
but  foisted  on  a  gullible  public  at  a  high  price  by  mendacious 
advertising;    cheating  of  laborers,  through  "company  stores" 
or  in  the  letting,  of  company  tenements,  through  fines  nom- 
inally for  poor  work  (weavers),  through  overcharges  (on  miners) 
for  materials  and  supplies.     One  of  the  most  conspicuous  and 
fur-reaching  forms  of  jjredatory  business  work  is  in  the  abuse 
of  positions  of  trust  by  directors  and  managers,  often  closely 
associated  with  stock  (>xcliange  speculation.      The  same  man 
may  violate  fiduciary  obligations  and  gamble  with  loaded  dice 
on  the  stork  cxrhangr-,  ytt   he  a  gnnit  capt;un  of  industry. 
American  industrial  history  is  full  of  m(>n  of  this  type,  and 
>  Compare  Bonk  VI,  Chaptora  55  iiud  50. 


BUSINESS  PROFITS 


189 


f 


our  great  fortunes  are  due  in  no  small  degree  to  tins  tainted 
sort  of  business  activity.  The  proximate  aim  of  the  business 
man  is  to  make  money.  All  is  fish  that  comes  into  his  not 
Unless  restrained  by  the  law,  or  public  opinion,  or  moral 
scruples,  he  will  turn  to  anything  that  promises  a  handsome 
surplus  over  expenses. 

The  restriction  of  business  profits  within  "  legitimate  "  bounds 
depends  on  two  things :  on  the  one  hand,  full  and  free  com- 
petition; on  the  other  hand,  the  maintenance  of  competition 
on  a  high  plane. 

First,  freedom  of  competition.  Monopoly  profits  are  not 
"illegitimate"  in  the  sense  in  which  are  those  which  result 
from  sharp  practise  and  cheating;  but  they  are  "illegitimate" 
in  being  greater  than  necessary  to  induce  the  e.xeroise  of  the 
full  productive  faculties.  Setting  aside  such  cases  as  pt  fents 
and  copyrights,  they  mean  that  the  public  pays  more  than 
there  is  any  need  of  paying.  Shrewd  understanding  of  the 
possibilities  of  monopoly,  skillful  management  of  monopoly 
indust--os,  have  been  great  sources  of  business  men's  incomes 
and  .  nes ;  and  this  without  violation  of  law  or  of  tlie  pro- 
prieties of  business  life.  The  regulat  f  monopoly  industries 
IS  among  the  most  urgent  of  social  pu.  ,nd  essential  for 
keeping  business  profits  within  the  limits  o.  die  reasonable  or 
legitimate. 

The  maintenance  of  a  high  plane  of  competition  depen.: 
partly  on  law,  partly  on  public  opinion  and  the  pervadiii 
moral  spirit.  The  aim  of  the  law  is,  or  should  be,  to  rauko 
men's  relations  with  each  othcT  such  as  to  promote  the  general 
good  and  to  inhibit  predatory  doings.  Tl  s  is  the  basis  of  the 
main  provisions  of  the  law  of  private  prop  rty,  — protoction  to 
property  holders,  punishment  for  physical  violence  and  r()l)bery, 
free  contract,  definition  and  prevention  of  fraud.  As  iuilustrial 
conditions  change,  and  as  men's  consciousness  of  comi.mri 
inteiest  enlarges,  tl„.  lovral  relations  arc  modified.  .Siavrrv. 
which  was  part  of  the  e.stal)lisluHl  ordcT  of  things  not  only  in 
ancient  times,  but  till  nearly  our  own  day,  is  now  forbidden  in 


hi 


t;'« 
■I 


]i  1 


■!    t 


190  THE  DISTRIBUTION  OF  WEALTH 

all  countries  that  pretend  to  be  civilized.    The  same  is  the 
case  with  serfdom.     Competition  and  bargaining  between  men, 
and  the  exercise  of  force,  are  not  allowed  to  proceed  on  this 
basis  or  to  this  extreme.     Characteristic  of  our  own  day  is  the 
regulation  of  the  terms  of  dealings  between  employer  and 
employed,  -  laws  for  regulating  the  mode  of  paying  wages, 
the  hours  of  labor,  minimum  wages,  as  well  as  those  regulating 
truck  shops  and  the  like  possible  sources  of  profit  felt  to  be 
illegitimate.     Pure  food  laws  belong  in  the  same  class.     So  is 
the  improvement  of  legislation  regarding  stock  companies,  the 
definition  and  enforcement  of  the  liabilities  of  directors  and 
managers,  the  prevention  of  swindling  in  promoting  and  float- 
ing corporations.     The  aim  throughout  is  to  compel  all  persons, 
■md  especially  the  leaders  and  managers  of  industry,  to  conduct 
their  operations  under  such  uniform  conditions  as  will  direct 
their  energies  to  protluctive  and  serviceable  emulation  only. 

Public  opinion  is  also  an  important  factor,  both  '     'wading 
to  legislation  and  in  adding  to  the  effect  of  legislati'  ..     The 
more  the  anti-social  effects  of  predatory  activity  are  recognized 
and  frowned  upon,  the  more  will  business  energy  turn  to  ways 
of  true  service.     Opinion  among  business  men  themselves,  and 
in  the  whole  social  stratun.  in  which  they  live,  has  been  too 
much  dominated  by  mere   money-making,  -  the    worship  of 
the  millionaire.     The  more  these  classes  are  permeated  by  in- 
telligent insight  as  to  what  business  men  really  do,  and  high 
standards  as  to  what  they  should  do,  the  better  will  be  the 
working  of  the  system  of  private  property  under  the  business 
man's  guidance.     Widespread  teaching  of  economics,  such  as 
is  carried  on  at  present  in  our  .\merican  u. '  'ersities  and  col- 
leges and  schools,  ought  to  contribute  much  to  this  end. 

At  tlu"  best,  however,  there  will  always  be  a  residuum  of 
dubious  business  profits.  So  long  us  there  is  freedom  of  invest- 
ment and  of  contract,  tlu  re  will  be  foolish  investors,  hapless 
speculators,  shorl-sighttVl  bargainors.  Shrewd  and  stmng  per- 
sons will  take  advantage  of  the  ignorant  and  weak.  There  will 
always  be  operations  as  to  which  it  is  difficult  to  draw  the 


BUSINESS   PROFITS 


191 


line  between  fraud  and  sharp  bargaining.  There  will  always 
be  men  to  whom  moral  scruples  mean  little.  Some  things  "of 
this  sort  are  the  inevita})le  concomitants  of  the  regime  of  private 
property,  which  even  at  its  best  can  be  justified  only  by  a 
balance  of  good  over  bad. 


it 


i 


W' 


CHAPTER  51 

Geneual  Wages 

§  1.   Wages  are  so  immensely  varied  that  it  may  seem  idle 
to  aiin  at  any  generalizations  regarding  them.     They  range 
from  the  earnings  of  tlie  highly  paid  l)usiness  manager  or  pro- 
fessional man  to  those  of  the  mechanic  and  common  laborer. 
Not  less  varied  are  the  methods  by  which  those  earnings  are 
got.     The  simplest  method,  and  that  which  we  most  commonly 
a.sso(i!ite  with  the  term  "wages,"  is  tlie  payment  of  stipulated 
amounts  by  an  (>mi)loyer.     Thi-  earnings  of  the  independent 
worker  ~  whether  he  be  business  man,  lawyer,  farmer,  crafts- 
man-are almost  always  more  irregular,  and  almost  always 
inolude  some  elements  (in  the  way  of  interest  or  rent)  which 
1110  not  return  for  labor.     Still  dilTerent  is  the  position  of  the 
.lu-tayer  tenant  and  of  the  fisherman  working  for  a  share  in  the 

catch. 

It  will  l>e  best  to  C(mcentrate  attention  on  the  sunplest  ca.se, 
-  that  of  hired  laborers,  pai-l  once  for  all  l)y  the  day  or  by  the 
piece.  This  iikhIo  of  remuneration  l)rings  up  the  "wages 
,,„.  .ii„.r'  ill  the  luirrower  sense.  It  is  the  mode  of  remunera- 
tion becoming  more  and  more  conunon  with  the  spread  of  large- 
srale  production.  It  raises  the  fimdamental  (|ue,stions  as  to 
the  causes  determining  the  general  rai-gc  of  wages. 

§  2.  rirsl.  some  erroneous  notions  may  be  di,s])o.se(l  of.  One 
of  these  is  that  lavish  expenditure  creates  a  demand  f(.r  labor, 
and  is  goiid  for  laborers.  On  this  ground  luxury  an.l  extrava- 
nunce  of  all  ..rt-  have  Immm  c.nun.'ndfd,  expressly  or  by  iin- 
phcatioii.  'I  he  fallacy  which  underlies  it  has  often  been  pointed 
out.     That  which  is  saved  is  spent  (|uite  as  much  as  that  which 

Ml       .1  •.   I         ..!.-    ..i"    t{...    I'.....*    ..♦*.!»    ill    Jliii 
.»T    |Mi.J)ir    JiiUiU    V!I!i%     t^l    :::••    :i!-T    --a 


GENERAL  WAGES 


193 


process  of  saving  and  investment,  —  as  if  it  were  merely  a 
matter  of  putting  money  by,  and  leaving  it  in  a  hank  or  other 
safe  place.  The  money  which  is  put  by  is  turned  over  to  some 
one  else,  usually  to  a  person  c-^aged  in  operations  of  production. 
It  is  simply  spent  in  a  difTcrtmt  way.  It  leads  equally  to  the 
employment  of  labor,  and  is  otiualiy  the  means  i)y  which  the 
employers  antl  workmen  get  conunand  of  the  things  they  wish 
to  buy.  The  difference  cetween  expenditure  on  luxuries  and 
investment  is  .simply  a  difference  in  the  direction  in  wliich  labor 
shall  be  employed. 

Tha>  difference  in  direction,  of  course,  may  liavc  iwrmanent 
consequences.  Ii  may  mean  that  some  .sorts  of  laiior  aic  more 
in  demand,  others  are  less  in  demand.  If  we  imagine  lliat  the 
laborers  hired  in  constructir.g  mansions  oi  jjleasure  yachts,  or 
in  prodigal  entertainment,  are  in  one  non-competing  group,  and 
that  those  hire<l  in  building  factories  or  railways  an  in  another, 
a  change  in  the  direction  of  d  'mand  may  permanently  inlluencc 
relative  wages.  But  such  a  permanent  change  is  very  improb- 
able. Temjjorary  changes  in  wages,  on  the  other  hand,  caused 
by  shifts  in  the  demand  for  labor  engagc<l  in  various  directions, 
are  not  only  possible,  but  are  among  the  most  common  of 
ec(momic  phenomena.  These  shifts  arc  ([uite  as  likely  to  be 
from  one  sort  of  inune<liate  e-vpenditun-  to  another  sort  -  from 
bicycles  to  automobiles  —  as  from  exi»enditiire  to  saving  and 
investment.  They  do  not  influonce  for  better  or  worse  the  total 
demand  for  labor. 

Ix)oking  not  to  the  immedia  i*  effects,  but  to  the  eventual 
results,  of  investment  as  compared  with  "expenditure,"  we  may 
agree  with  the  older  economists  who  maintained  that  saving 
was  advantageous  to  the  laborers.  Invstment  usually  leads 
to  the  increase'  and  iinprovenu'iit  in  the  apparatus  of  prodii  - 
tion,  -  the  tools,  machinery,  factori<'s,  materi.ils.  Tin- event  in! 
result  is  the  production  of  more  consumable  commodities  than 
would  otherwi  (•  be  jirocured.  Were  tools  not  succes-t'u!  in 
bringing  about  this  result,  they  would  not  prove  profitalih'  and 
would  not  l>e  made 

VOL.   II    -o 


1  rii«  CO!ls>i!nu! }!e  en!u!!!ni lit  ics  ■i!'c~.U!!tHli!v 


194 


THE  DISTRIBUTION  OF  WEALTH 


^! 


( 


fl' 


are,  in  groator  or  loss  part,  such  as  tht^  lalwrers  themselves  buy ; 
and  l)y  thoir  greater  abundance  and  dioapness  the  laborers 
gain.  On  tiiis  ground  it  may  be  said  tliat  investment  as  com- 
l)ar(>d  with  immediate  expenditure  is  l)etter  for  the  hiborers  as 
a  whole.  In  tii(>  first  stages  they  are  neithcT  injured  nor  bene- 
fited ;  in  the  end  they  are  likely  to  l)e  benefited. 

§  3.  Still  another  notion,  cropi)ing  out  continually  in  all 
sorts  of  forms,  is  that  it  is  advantageous  that  enjployment  be 
created  or  maintained  for  laliorers.  A  great  fire,  or  a  great 
war,  is  sometimes  thought  a  godstMid  to  the  workingman.  A 
heavy  snowstorm  is  welcomed  l)ecause  it  brings  employment. 
And,  conversely,  improvements  and  lal)or-.saving  macliinery  are 
thought  to  dimiuisli  emi)Kiyment  ;  Jo  tliey  not  dispense  with 
the  services  of  so  many  workmen?  l.altorers  themselves  are 
almost  invarial)ly  desirous  of  "nia  iig  work."  They  believe 
that  a  more  diliicult  way  of  doing  a  thing,  one  that  calls  for 
more  labor,  is  iu-tter  for  those  who  have  to  s'll  tlie  labor.  Few 
persons  maintain  views  of  this  sort  deliberately  and  steadily; 
yet  there  are  f(>w  wiio  do  not  sometimes  fall  into  ways  of  speech 
that  imply  them 

It  is  obvious  tiiat  mankind  camiot  be  made;  better  ofT  by 
causing  work  to  be  less  productive,  or  by  re(|uiring  additional 
labor  for  accomplishing  tli."  same  tiling.  If  tlierc;  were  c(m- 
Ktant  snowstorms  and  a  need  of  giving  unremitting  labor  to 
siiow->hoveIing.  so  much  less  labor  could  be  given  to  opera- 
tion-; biinging  not  negative  i>ut  posit ivi-  results.  The  labor 
which  is  given  to  replacing  wealth  (l(«>troyed  by  fin  or  war 
might  iiave  Imcii  given  to  the  creation  of  so  much  new  wealth. 
'riii>  abmiilance  of  consiimalile  commodities,  on  whicfi  all 
material  prosjierity  \*  bottomed,  evidently  deueiuls  on  gi  tting  as 
much  done  a^  po-ili|c  witli  a^  little  IiiIimi-  as  possible.  Mow 
then  can  penjile  talk  so  persistently  aluiut  the  advantages  of 
creating  iMiiplnyni.'iit '' 

The  expiaiiMtion  i^  to  lie  found  ])artly  in  the  consiviuences 
of  the  division  of  lulmr,  bviimiiig   fi>  it   does  a  dilTcr -nee  be- 

Wrril  Ilir  rail-;-    ;i;t:::;^    :?::    ^t::t;;u    j: -r-jr  :  :i  j   ttti-i    Iji-*-*    i^  VMly^ 


GENERAL  WAGES 


196 


on  particular  groups ;  partly  iu  the  nei-ssitous  position  of  most 
hired  laborers. 

Where  there  is  no  division  of  labor  ami  no  exchange,  this 
notion  can  never  arise.  No  farmer  working  for  himself  will 
think  for  a  moment  that  it  is  for  his  advantage  to  choose  that 
way  of  doing  a  thinij  which  involves  most  labor.  He  will  wel- 
come every  labor-saving  aj)pliance.  Hut  when  there  is  division 
of  labor  and  exchange,  every  individual's  curiiings  depend  not 
only  on  the  quantity  of  tilings  which  his  labor  produces,  but 
on  the  terms  of  sale  for  those  tilings.  It  may  \)v  to  his  individual 
advantage,  and  still  more  often  may  seem  to  his  advantage,  to 
l)niduce  less  and  sell  for  more  ;  even  though  it  be  obvious  that  if 
all  men  did  this,  all  would  be  worse  off.  And  similarly  it  may 
be  to  his  advantage  that  his  labor  shoiiM  be  more  in  demand, 
even  though  the  cause  be  something  that  lessens  the  total  gain  of 
society.  A  great  hailstorm  with  many  broken  windows  means 
a  demand  for  glaziers,  If  this  sort  of  destruetioii  went  tin  all 
the  time,  the  number  of  glaziers  in  the  comtuutiity  would 
accommodate  itself  to  the  situation.  .More  persons  would  do 
tl  ort  of  work,  and  less  persons  would  be  availalile  for  <loing 
othi  r  things.  Only  if  the  glazieis  formeil  a  lion-comiietiiig 
group  or  lalior  monopoly,  would  they  bemlit  i.i  the  long  run. 
Hut  for  a  time  those  glaziers  who  hapj)en  to  be  on  hand,  and 
ready  to  do  this  particular  sort  of  work,  gain  by  an  increase  of 
demand  for  their  services.  Most  men  see  only  immeiliate 
elTects,  and  draw  geiiend  conelu>ioiis  from  tem])orary  iilie- 
noinena.  They  suppose,  or  talk  as  if  they  supposed,  that  what 
is  good  for  a  limited  number  of  workmen  for  a  short  tinje  is 
good  for  all  workmen  lor  an  iudelinite  time. 

Most  important  of  nil,  however,  in  explaining  the  common 
attitude  of  workmen  is  their  ^losition  as  hired  laborers.  I'or 
them  it  is  of  (ir.-t  import:inc(  that  they  I"  eniiiioved.  W  line 
j)ermanence  of  employment  is  assun>d.  they  nre  rarely  npim  .d 
to  labor-saving  iipplianees.  Hut  when  they  are  enuaiii'ii  "U  a 
given  jol),  ami  will  no  longer  be  wanted  when  that  joli  is  il.nie, 
tliiv  wisli  tliut   it  .-liiiiii  ioutinui"-,      Nt'  dr. ui'i.  in  the  iut!-;;  -'  o! 


196 


THE  DISTRIBUTION  OF  WEALTH 


K     > 

V 


4 


i   ,.|, 


I"!  I 


general  efficiency  in  production,  it  is  desirable  that  this  job 
shall  be  disposed  of  as  quickly  as  possible,  and  that  their  labor 
shall  then  be  turned  to  something  else.  But  where  that  some- 
thing else  is  not  immediately  in  sight,  it  is  natural  that  they 
should  wish  the  existing  employment  to  hold  out  as  long  as 
possible.  It  is  the  difficulty  of  transition  to  another  employ- 
ment that  explains  the  desire  to  make  work,  or  to  keep  work 
going.  It  is  that  same  difficulty  of  transition  that  goes  far 
toward  explaining  the  disadvantages  of  the  workman  in  bar- 
gaining with  his  employer,  and  constitutes  one  of  the  main 
justifications  of  labor  unions.' 

The  situation  is  essentially  the  same  where  the  workmen  of 
a  given  trade  are  confronted  with  some  improvement  that 
causes  lal)or  to  be  more  productive.  For  them,  it  may  mean 
less  emi)loyment  ai^d  the  necessity  of  either  accepting  less  wages 
or  moving  to  son  i  vjther  occupation.  The  inventions  of  the 
linotype  and  the  typesetting  machine  greatly  increased  the 
output  of  lal)or  in  |)rinting.  They  diminished  also  —  for  a 
while  at  least-  the  demand  for  compositors.  Some  of  the 
older  members  of  the  trade  who  could  neither  work  the  new 
n  achines  nor  turn  to  anything  else  found  themselves  in  a  sad 
position. 

It  happened  in  the  printing  trad^ ,  ami  indeed  has  often  hap- 
pened in  other  cases,  that  the  total  number  oi  men  employed 
in  it,  and  so  the  demand  for  labor  in  its  former  employment, 
did  lint  become  less  at  all,  or  less  only  for  a  very  short  time. 
The  clieiipening  of  u  comincMlity  may  mean  an  increase  in 
demand  such  that  the  total  sum  sjient  on  it  may  be  as  great 
as  before,  even  greater  than  before.  With  lower  prices  for 
books  and  newsjmpers,  it  is  entirely  ))ossil)le  that  many  more 
will  be  bought,  and  more  ])ers(Hl^,  not  h'ss,  emiilnyed  in  printing 
them  It  has  luiii  maintained  td,,!  :m1(  h  is  the  common  effect 
of  invention;  and  labor-saving  api)liances.  Fiut  this  is  (pjite 
too  optimistic  ft  view.  The  outcome  evidently  depends  on  the 
eiasticity  of  demantl  for  the  particular  commodity.  « >n}y  when, 
'  Si'c  lii'lnw,  lliiiik  VI,  ('hi»pt("r  55,  on  Trnde  I'nions. 


GENERAL  WAGES 


197 


with  a  lowering  of  price,  demand  extends  rapidly,  is  it  likely 
that  there  v,  ill  he  no  displacement  of  labor. 

§  4.  Very  different  in  character  from  the  confused  and 
fallacious  notions  just  discussed  is  the  view,  hold  by  many  able 
economists  of  our  day,  that  tho  fundamental  determinant  of 
wages  is  the  specific  product  of  lulwr.  x\s  between  labor  and 
capital,  each  is  sujjposed  to  contril)ute  a  share  of  its  own  to 
the  output.  There  is  a  specific  product  ascril)able  to  capital, 
and  a  specific  product  ascribable  to  labor.  Each  tends,  under 
competitive  conditions,  to  get  as  reward  what  it  adds  to  the 
product.  It  is  a  natural  corollary  that  su<'h  distribution  of 
rewards  is  in  accord  with  ju.stice;  thnii(>;h  tills  follows  o.ily  if 
it  be  granted  — by  no  means  a  matter  of  course  —  that  distri- 
bution in  i)roportion  to  efficiency  is  always  just.' 

To  enter  on  a  dt'tailed  discussion  of  the  reasoning  which  has 
been  applied  to  this  mode  of  treating  wages  would  pass  the 
l)ounds  of  tlie  present  book.  The  main  ground  on  wliich  it  is 
open  to  question  has  already  been  inilicated.'-  It  assumes  a 
separate  jiroductivity  of  capital  as  well  as  of  labor.  But 
capital  is  itself  made  by  labor;  it  represents  a  st.icc  in  the 
applications  of  labor.  If  one  juTson  make-^  a  tool,  and  another 
uses  the  tool,  the  two  coml)ine  in  making  the  consumable 
thing.  Through  this  time-using  and  elaborate  process  more 
consumable  things  are  likely  to  l)e  madi^  than  would  be 
made  in  a  simpler  process;  and  this  increa.se  in  the  output 
goes  far  to  explain  why  there  is  a  return  (interest)  to  the 
owners  of  tools.  Hut  to  explain  how  a  return  to  the  owners 
arises  is  not  th(>  same  thing  as  to  demarcate  a  separate  product. 
There  is  no  separate  proihiel  of  the  tool  on  the  one  hand,  or  of 
the  labor  using  the  tool  on  the  other.  There  is  a  joint  product 
of  all  the  labor  applied,  earlier  labor  as  well  as  later  labor. 
Wo  may  disengMge  the  causes  determining  why  and  how  th" 
laborers  who  use  and  make  the  tools  get  wages,  from  tli(>  causes 
determining  why  and  iiow  the  owner  of  the  tools  gets  interest  ; 


n 


'  Mrr  what  in  miid  iiiidcr  tlir  ti. 
»lu  rtupt.T  ;»s.  }.l. 


A  (.1  S.Miiili,..in,   H.H.I.   \  II,  Cliiiiitu   lU.  5  1 


n 


198 


THE  DISTRIBUTION  OF  WEALTH 


I 


but  we  can  disengage  no  concretely  separable  product  of  labor 
and  capital.  It  is  on  this  ground,  here  stated  as  concisely  as 
may  be,  that  I  would  turn  to  some  other  mode  of  analyzing 
the  causes  which  underlie  the  general  rate  of  return  to  labor. 
§  5.  The  simplest  and  clearest  mode  of  stating  the  theory 
of  general  wages  is,  in  my  judgment,  to  say  that  wages  are 
determined  by  the  discounted  marginal  product  of  labor.  Let 
attention  be  given  to  the  two  elements  in  this  somewhat  cum- 
brous formula:   "margin"  and  "discount." 

^Yhat  is  meant  by  marginal  product  will  be  obvious  enough. 
It  appears  most  clearly  as  to  agricultural  produce  and  with 
regard  to  the  theory  of  rent  as  applieil  to  such  produce.  Wages 
and  interest  are  determined  at  the  margin  of  cultivation.  Any 
excess  secunnl  on  land  better  than  the  marginal  land  goes  to 
the  landowner,  and  does  not  affect  th  >  returns  of  other  persons. 
The  same  principle  is  applicable  to  monopoly  gains,  and  to  all 
differential  gains.  TIh>  laboriT  who  deals  with  th(>  owner  of 
good  land,  or  with  a  monopolist,  must  accept  what  can  be  paid 
him  by  the  marginal  landowner  or  the  competitive  producer. 
Any  extra  or  dilTerential  returns  go  to  tiie  fortunate  owners  of 
those  instrununts  which  have  been  sheltered  by  nature  or  by 
social  institutions  from  unfetttTcd  '•ompetition. 

DiscoH'it  implies  an  advance.  Let  it  be  recalled  that  pro- 
duction takes  time;  that  the  materials  and  machinery  needed 
in  the  time-using  process  are  made  by  laborers.  Wealth  is  un- 
e(|ually  distributed,  and  the  immense  majority  of  the  laborers 
have  not  the  wlHTcwitlml  to  sup|)ort  themselves  during  the  pro- 
longed period.  Their  remuneration  is  advanced  to  them  out 
of  a  surplus  posses.-ed  by  some  one  else.  The  operations  of 
capitalists  consist  iti  a  succession  of  advances  to  the  laborers.' 
The  capitalist  class  s(>curcs  its  gains  through  th(>  proi'ess  of 
handing  over  to  tiie  liiborers  less  than  the  lal)orcrs  event \iaily 
pioduee.  The  product  of  \n\mv  is  discounted  by  the  capitalist 
employers. 

I'his  view  may  be  stated,  in  mon-  leelmie.il  ttriii,-',  iiy  saying 

I  I'oinimri'  Iknik  1,  f  hiiplii  .1,  5  T. ;    Hi.ok  V,  Clmi.l.'r  .'IH,  | ;». 


GENERAL  WAGES 


199 


1 


that  labor  is  a  "future"  Rood,  in  the  same  sense  in  which  a 
machine  or  a  store  of  material  is  a  future  good.  It  is  a  means 
by  which  "present"  goods  (consumable  commodities,  or,  more 
strictly,  satisfactions)  are  (>ventually  got.  The  essence  of  the 
explanation  of  interest  is  that  present  goods  are  preferred  to 
future  gootls ;  that  present  means,  or  sources  of  satisfaction  in 
hand,  will  not  be  exchanged  at  par  for  sources  of  satisfaction 
that  are  to  accrue  in  the  future.'  Tiie  same  jiroposition  is  put 
in  still  different  t(.ms  by  saying  that  "saving"  or  "postpone- 
ment" or  "waiting"  ordinarily  involves  a  sacrifice,  and  will 
not  be  incurred  unless  then>  is  a  reward.  The  theory  of  wages 
is  thus  strictly  consistent  with  the  tlu'ory  of  ititen>st. 

In  this  process  of  discounting,  the  wliole  series  of  productive 
operations  must  be  regarded.  The  "practical"  man  will  readily 
accede  to  the  notion  of  a  discount,  as  regards  the  particular 
segment  of  industry  with  which  he  is  familiar.  It  will  be 
obvious  to  him  that  the  laborer  catmot  be  paid  as  much  as 
the  product  will  sell  for;  otherwise  nothing  will  be  left  for  the 
employer  and  cai)ital-owner.  Hut  the  advances  to  laborers 
are  needed  for  a  much  longer  period  than  that  which  must 
elapse  until  a  .salable  jjroduct  is  turned  out.  The  salable 
product  is  likely  to  be  itself  some  sort  of  "cai)ital  good";  it 
represents  only  one  stage  in  the  series  of  advances.  The  person 
selling  machines  or  materials  rediscounts,  so  to  speak;  the  cap- 
italist-i'mployer  who  buys  tlum  recoups  the  original  employer, 
and  th(Mi,  in  the  course  of  the  next  stage  of  production,  adds 
further  advances  of  his  own  to  other  laborers.  Not  through 
one  stage  only.-  not  merely  in  ihc  paynu'nt  of  wages  by  the 
individual  employer  ui;fil  he  sells  his  iroods,  -but  through  all 
the  stages,  from  tiie  first  gathering  of  materials  jiml  t  .e  first 
fashioning  of  tools  up  to  the  final  emergence  of  satisf.action- 
yielding  "reil"  in<'OM(e,  advances  to  workmen  as  a  >»hole  arc 
made  by  the  capitalists  as  a  whole,  and  discounting  takes 
place  ,  '   each  successjxe  stage. 

rr-iitiii-  (pnnisionaiiy)  to  take  place 


,  iU: 


rOij.iT.    .M"   lie 


'  (■..ini'Mn'  ChfiiitiT  Ml.  5  J. 


200 


THE  DISTRIBUTION   OF  WEALTH 


I 


If 


II! 


m 


I 


at  the  current  rate  of  interest.  Evidently  the  simpler  the 
processes,  and  the  more  predictable  their  outcome,  and  the 
more  effective  the  competition  among  capitalists,  —  the  closer 
will  be  the  correspondence  between  future  product  and  present 
wages.  The  discount  then  will  be  easy  to  calculate.  Where 
the  process  is  complicated,  long-stretched-out,  and  uncertain  as 
to  its  outcome,  the  relation  between  wages  and  product  is  a 
very  loose  one.  Such  an  operation  tus  the  construction  of  the 
Panama  Canal  illustrates  the  maximum  of  uncertainty  in  the 
relation  between  product  and  wages.  It  will  take  years  to 
build  the  Canal ;  it  will  take  further  years  l)efore  its  effects  on 
the  ocean  routes  and  on  the  cost  of  transportation  are  worked 
out ;  and  still  further  years  before  these  changes  affect  the 
international  division  of  labor  and  the  ultimate  increase  of 
product  du(>  to  increased  geographical  specialization.  Mean- 
while, those  engaged  on  work  at  the  Canal  ilo  not  receive  wages 
iletermined  by  the  discounted  value  of  the  product  of  their 
own  labor.  They  receive  the  current  discounted  value  of  similar 
labor  in  those  routine  industries  where  experience  has  indicated 
what  the  output  will  lie.  What  is  true  of  the  Panama  Canal 
is  true,  in  some  degree,  of  all  new  and  venturesome  operations. 
In  sucli  operations  the  business  man  exercises  his  most  charac- 
teristic functions,  and,  if  successful,  procures  his  highest  returns. 
He  not  only  discounts,  he  sjji'culates ;  and  he  pays  to  his 
laborers  the  rate  of  wages  fixed  in  those  operations  in  which 
tin-  discount,  on  the  basis  of  the  current  rate  of  interest  and 
nf  the  ordinary  return  to  the  ordinary  business  wnn  for  his 
own  labor,  is  comparatively  simple  and  calculable. 

§  0.  Two  ({ualifications  iiiust  be  borne  in  inuid  as  to  this 
reasoning :  one  with  n-gartl  to  the  discount,  the  other  with 
regaril  to  the  margin. 

(1)  It  was  assmned  in  the  preceding  section  that  the  dis- 
counting tak(  !  place  at  llie  vurrent  rate  of  interest.  Here  we 
must  l)e  on  o  .r  gusird  against  reasoning  in  a  circle.  In  i)r<'vi')us 
i-liapti-ns,  intifvT.t  lias  beeii  acruuntcil  for,  in  part  at  har.t,  by 
the  fact  that  thi>re  is  u  "productivity"  of  capital;    it  results 


GENERAL  WAGES 


201 


from  the  application  of  labor  in  more  productive  ways.  If  this 
were  the  whole  of  the  theory  of  interest,  we  should  reason  in  a 
circle  in  saying  that  wages  are  determined  by  a  process  of  dis- 
count. If  interest  depended  simply  on  the  excess  of  what  the 
laborers  produce  in  the  future  over  what  is  advanced  to  them 
in  the  present,  the  rate  of  interest  then  would  result  from  the 
process  of  advances  to  laborers ;  it  could  not  also  regulate  or 
determine  the  amount  of  those  advances. 

But,  as  has  also  l)een  pointed  out  in  the  previous  chapters,' 
the  conception  of  the  "productivity"  of  capital  explains  only 
the  demand  price  of  capital.  The  conditions  of  supply,  and 
the  equilibrium  of  demand  and  supply,  are  also  to  be  considered. 
If  there  is  a  regulator  of  interest  in  the  way  of  a  general  or 
marginal  time-preference,  —  a  minimum  return  necessary  to 
induce  saving  and  accumulation  on  a  large  scale,  —  then  and 
then  only  have  we  an  independent  determination  of  interest, 
and  so  a  tenable  theory  of  wages  as  the  result  of  an  operation 
of  discount.  The  chief  evidence  which  we  have  of  such  a 
fundamental  supply  price  has  been  found  in  the  steadiness  of 
the  rate  of  interest  during  the  modern  period.  At  all  events, 
unless  there  be  such  a  l)t*sic  and  independently  determined  rate 
of  interest,  the  conception  of  di.scounting  labor's  pioduct  can 
lead  to  no  consistent  conclusion  on  the  api)ortionment  of  returns 
between  laborers  and  capital-owners. 

(2)  A  competitive  margin  is  assumed,  at  which  the  process 
of  discountinjf  is  carried  on  with  some  approach  to  certainty. 
At  that  margin  there  is  notlilng  in  the  nature  of  rent  or  mo- 
nopoly {.lain ;  nor  is  there  exceptional  i)rofit  by  a  bu.siness  man 
of  unusual  capacity.  We  suppose  a  represent  at  iv(>  firm,  carry- 
ing on  its  operations  at  the  margin  of  cultivation,  securing  for 
its  owners  and  managers  ordinary  business  profits  and  interest 
on  capital,  but  nothing  more.  What  i^'  paid  in  wages  here 
settles  wages  in  the  more  profitable  establishments  a'so ;  and 
wiiat  is  paid  in  wages  here  is  .settled  by  the  process  of  discounting. 

Here,  again,  the  theory  of  wages  connects  itself  witii  other 

'  .S(!c  Cliapti  1  .i'>.  rspcL'iall.v  SJ  t.  .">. 


h 


Mi 


illj 

L    "W 


202  THE  DISTRIBUTION  OF  WEALTH 

parts  of  the  theory  of  distribution.    The  distinction  between 
interest  on  the  one  hand,  rent  and  monopoly  gains  on  the 
other,  depends  on  the  assumption  of  a  competitive  rate  of 
return  for  capital,  -on  the  existence  of  a  broad  margin  where 
in  the  long  run  only  those  retvu-ns  are  >ecured  which  are  neces- 
sary to   induce   the  investment   and   management   of  capital. 
If  there  be  no  such  margin,  tliere  is  no  ground  lor  distinguish- 
ing between  interest  and  the  other  returns    to    the  owners  of 
capital  and  land.'     And  if  there  be  no  such  margin,  there  is 
no  ground  for  saying  that  wages  are  in  any  ilKi-rnunate  rela- 
tion to  the  product  of  labor.     If  the  return  to  the  owners  o 
eapital   is  o.ilv  a  matter  of  accident,  or  the  ..suit  merely  of 
power  in  their  hands,  the  amount  which  tlu-y  will  advance  to 
laborers  is  subject  to  no  controlling  tendency.     The  most  that 
ean  then  be  said  is  that  the  general   rate  of  wages  will  de- 
pend   on    the    relation  between   the   number  of   the   laborers 
and  the  amounts  which  the  capitalists  choose  to  advance. 

There  is  doubtless  a  Icssi-niiig  range  of  -■ompetition  m  modern 
times.     The  margin  is  fur  from  coextensive  with  the  field  of 
industrv ;    rent  and  monopoly  profits  play  a  larger  part  than 
in   previous   generations.     There   is   thus   a  wider  divergence 
between  wages  and  the-      .tal  .liscountable  product  of  labor. 
The  con.'entration  of  the  control  of  capital,  and  the  growth  of 
,onibiuatioii  and  mmu.poly,  sugg.>st  that  com,,etition  may  be 
in  process  of  compl.'te  disai>pearaiice.     If  so,  all  our  reasoning 
as  to  a  normal  rat.>  of  interest  or  a  normal  general  rate  of  wages 
falls  t.)  the  ground.     Distribution  then  becomes  nothing  more 
than  a  struggle  b,-tw..en  hostil.-  forces.     But  the  same  considera- 
tions which  lead  to  the  conclusion  that  there  is  a  competitive 
region  in  which  tlie  return  to  capital  per  se  is  settle.l,  lead  to 
the  ronclusion  that   in  this  region  th«>  return  to  lal)or  also  is 
settled.     A  v(TV  large  part .  probably  the  larger  part ,  of  modern 
industry  is  still   conducted  under  the    leveling    conditions  of 
competition  ;   and  then-  i>  an  approxitnatitm  of  WL«g.>K,  by  way 
of  discount,  to  the  product  at  this  margin. 

1  Sor  (  luiptir  10,  i  3. 


GENERAL  WAGES 


203 


§  7.  The  fluctuations  of  wagos  above  and  below  the  general 
level  determined  by  the  discounting  of  the  marginal  product 
are  much  affected  i\y  the  conditions  under  which  tlie  advances 
are  made.  Here,  as  elsewhere  in  the  economic  field,  the  work- 
ing of  the  fundamental  cause  is  obscured  by  the  more  super- 
ficial factors. 

The  employers  pay  wages  in  money.  The  money  is  used  by 
the  laborers  in  buying  goods  and  services,  —  chiefly  goods. 
Both  the  extent  ami  the  continuity  with  which  money  advances 
are  made,  and  the  state  of  supply  as  to  the  goods  bought  with 
the  money,  affect  tlie  fluctuations  in  general  wages. 

The  store  of  things  fnjin  which  come  real  wages  —  that  is, 
the  goods  bought  with  the  money  wages  —  reaches  the  laborer's 
hands  through  a  flow ;  as  indeed  all  income  reaches  consumers 
through  a  flow.  We  may  u.sc  the  simile  of  a  reservoir,  con- 
stantly drawn  on,  constantly  refillerl.  The  stocks  of  the  retail 
dealers  constitute  th(>  supply  immediately  available.  Back  of 
these  are  the  stocks  of  the  wholesale  dealers  ;  back  of  these, 
again,  the  goods  in  process  of  manufacture  among  the  "pro- 
ducers." The  very  buildings  and  machinery  may  be  said  to 
contain  — much  as  the  raw  materials  do  —  the  potentialities 
of  future  consumable  goods.  The  whole  stock  of  wealth  in  its 
various  stages  may  be  regarded,  in  the  language  of  Bohm- 
Bawerk,  as  one  great  subsistence  fund,  of  which  a  part  only  is 
available  at  once,  the  larger  part  being  gradually  made  avail- 
able by  the  steady  pushing  of  the  unfinished  goods  toward 
the  stage  wh(>re  tluy  are  ready  for  enjoyment.  So  conceived, 
the  whole  mass  may  be  described  as  a  reservoir,  from  which  the 
conununily  is  constantly  drawing  a  stream  of  finished  goods 
(and  so  of  enjoynients),  and  into  which  its  labor  is  constantly 
replacing  what  is  drawn  off. 

The  flow  of  fitiislunl  goods  or  available  real  income  is  evi- 
dently elastic.  The  rate  at  which  the  reservoir  can  be  tapped 
is  subject  to  consider;iblt<  v.ariation.  In  nne  sonsiv  thf*  iuccirno 
of  the  whole  comnninily  m;iy  be  said  to  be  i)redetermiiieil  ; 
more  cannot  be  got  during  a  given  period  than  the  existing 


204 


THE  DISTRIBUTIOX  OF  WEALTH 


*N 


ill 


apparatus  of  production  is  capable  of  yielding  during  that 
period.  In  a  sense,  too,  the  income  of  any  particular  class  in 
the  community  may  be  said  to  be  predetermined,  in  so  far  as 
the  inflowing  goods  are  already  adapted  to  the  traditional 
tastes  of  different  classes.  But  there  remains  a  considerable 
degree  of  adjustability,  — more  or  less  rapid  flow,  diversion  ot 
goods  and  materials  toward  one  or  another  set  of  consumers, 
—  and  hence  a  response  of  real  wages  to  variations  in  the 
mo     y  advances  from  the  capitalists. 

i.,e  money  advances  from  the  capitalist-employers,  again, 
are  affected  by  their  expectations  of  gain.     In  times  of  hope- 
fulness and  activity,  money  wages  will  be  paid  out  more  freely, 
and  the  available  supplies  of  goods  will  be  drawn  on  with 
corrcspomung  freeness.     In  times  of  uncertainty  and  depres- 
sion, the  movement  will  be  a  sluggish  one.     In  good  times,  real 
wages  are  likely  to  rise  somewhat,  and  in  poor  times  they  are 
likely  to  fall  somewhat,  merely  through  a  quicker  or  slower 
draft  on  existing  supplies.     In  the  long  run,  the  amount  which 
can  be  drawn  from  the  reservoir  will  depend  on  what  the 
laborers  put  into  it,  as  well  as  on  the  competition  of  the  capi- 
talists among  themselves.     The  business  men  and  investors 
b.'  ^re  betwc-cn  them  tho  excess  of  product  over  and  above 
what  has  been  advanced  to  the  laborers.     If  the  excess  is  large, 
and  if  competition  among  employers  and  investors  is  active, 
they  will  be  led   (especially  in  brisk  times)  to  make  larger 
advances,  and  wages  will  gradually  rise.     If  the  excess,  though 
large,  is  secured  under  conditions  of  monopoly,  or  with  the 
use  of  limited  natural  r(>sources,  the  capitalist  class  will  reap 
extra  gains;  but  wages  wil!  not  be  affected. 

A  high  general  rate  of  wages  for  liiivd  laborers  thus  depends 
on  general  high  jjroductivity  of  industry  — or,  more  precisely, 
on  high  Muirginal  productivity  —  and  on  active  competition 
among  the  owners  of  capital.  Where  laborers  are  not  hired, 
but  w(irk  for  themselves,  the  relation  between  their  reward 
and  the  productivity  of  their  labor  is  obviously  more  direct 
and  certain.     The  broad  differences  of  wages  which  appear  in 


GENERAL  WAGES 


205 


J 
•1 


different  countries  arc  explicable  l)y  this  main  cause.  If  wages 
are  higher  in  the  United  States  tlian  in  Eiisland  and  Germany, 
higher  in  these  than  in  Italy  and  Austria,  hi^hc  r  in  all  European 
countries  than  in  India,  China,  and  Japan,  th(>  explanation  is 
to  be  found  in  the  varying  produetivenoss  o  laI)or  in  t!ie  several 
countries.  So  it  is  with  the  gieat  ehanses  in  wages  from  time 
to  time.  During  the  last  iialf  eeutury  there  has  Ijcen  a  ris(>  in 
general  wages  (real  vrages)  in  ail  the  countries  of  advanced 
civilization.  The  basis  for  that  rise  lu  s  been  th(>  steadily 
growing  productiveness  of  labor,  due  to  the  manifold  advances 
in  the  arts. 

§  8.  Returning  now  to  the  conception  of  a  discount,  and  to 
the  relations  between  wages  ami  interest,  it  is  to  be  noted  that 
a  high  absolute  rate  of  wages  usually  is  found  where  the  pro- 
portion of  total  wages  to  total  interest  is  comparatively  small. 
The  amount  of  income  of  the  interest-receivini;-  classes  depen<ls 
on  the  quantity  of  the  advances  made  by  them,  and  on  the 
rate  of  the  discount,  —  that  is,  on  the  rat(>  of  interest.  With  the 
same  rate,  their  iiicom(>  tends  to  l)e  larger  as  i)roduction  be- 
comes more  "capitalistic,"  —  tluit  is,  as  it  is  spread  over  more 
time  with  the  increasing  use  of  plant  and  the  increasing  elabora- 
tion of  materials.  Just  as  discount  figure's  more  largely  in  the 
present  value  of  a  five-year  note  than  in  that  of  a  one-year 
note,  so  interest  figures  more  largely  in  a  community  wh(M'c 
the  period  of  production  is  long  and  the  capital  per  laborer 
is  large.  The  inequalities  of  income  t(-nd  in  this  sense  to 
become  greater  as  total  income  becomes  larger.  True,  within 
the  capital-owning  class  itself,  im-qualilies  will  not  necessarily 
become  greater ;  for  the  number  of  persons  owning  capital  may 
increase  as  fast  as  its  amount  increases,  and  ownership  may 
be  no  more  concentrated.  But  the  absolute  amount  of  income 
going  to  this  class  tends  to  increase,  and  its  share  of  total  in- 
come tends  also  to  increase;  wluTcas  for  the  laborers,  thiiuj;h 
their  tot.a!  income  u\:\y  hu-vi^^-^'.^  thi'ir  •^haro  of  income  of  so'i'ty 
as  u  whole  'i  .ds  to  decline. 

Hence  iv      that,  on  the  whole,  wages  are  high  in  those  eom- 


i   tl 


Wmm^v^^^J^- 


206  THE  DISTKIliUTlUX   OF    v.lvVLTII 

muuitios  in  which  tlio  uceunmhitiou  and  invcstine.it  of  capitiil 
are  grout,  and  in  whicli  the  total  ri'turn  to  capitalists  is  laiKo. 
Plant,   niachinory,  huge  cuUeolions  of  materials,  an  elaborate 
apparatus  of  production,  arc  the  m.-ans  l.y  which  hi-h  pn.- 
.lu.livity  of  labor  is  normally  sccurc.l.     It  is  triu'  that  m  nr.v 
amntrics  other  comlilious  may  hrin-  about  lugh  w,  tn-        .  .bor 
in  them  is  likely  to  be  couliued  larg-ly  to  a-ricultu.     an  !  ur.u  r 
extractive  industries  in  wiiich  vir^iu   resources  a.         -  urd   t  . 
account  and  in  whiel.  there  is  eumparauvely  little  i        ■>  'ia     - 
rate  fixed  cai)itul.     Such  was  the  situation  of  tlie  Umtcd  M.i; .: 
during  the  hrst  century  of  its  hi>tory  ;   siu'h  is  tluit  of  (^mada, 
Australia,  New  Zealand      But  in  old  count ri(-s  tlu'  cause  bv 
which  liigh  wages  are  n.aih-  imssible       a  !at;h  productivity  of 
industry  -    is  that  very     mployment   of  much   capital   whuli 
brings  a  large  return  to  the  capital-ownin-  cla>s.     ( Ireat  Britaui 
has  higher  wages  and  ..  larger  cai.il alist  income  than  C.ermatiy  ; 
Ciernmny  lias  both  larger  than  Austria  or  Italy  or  Russia;   all 
the  European  countries  have  Ix.th  larger  than  .la;  ui,  Clima, 
ln<lia.     In  g.-neral,  the  very  forces  whi.'li  mak,    the   to'al   in- 
come of  M.ciety  higli  and  the  g.-neral  rate  ..f  wages  high  cau<e 
thi-  proportion  of  income  which  forms  return  *.n  capital  to  be- 
come large. 

This  ten<lency,  inherent  in  the  growth  of  eanitaliMic  pro- 
.luetion,  becomes  accentuated  in  the  d.'gree  to  which  ih.Te  is 
.Kl.rture  from  competitive  con.lili<.ns.  Monopoly  !-,ains  and 
,r,.uomic  rent  also  increase  the  proi>ortl(.u  of  t..tal  in.nm.' 
which  RO.S  to  the  po.MSMUg  classes.  Sucli  gains  even  t!;.n|.'. 
tb,  y  have  not  b.'comc  so  all-l.ervadin-C  as  to  wipe  out  the  wnolo 
regime  of  c.mpelitu.n,  have  become  of  ui  l.r  eM.i,(  m  m-d-rn 
times.  In  th.'  main.  they,  t.u,,  are  larry  ul.'ie  pnM.enly  is 
widelv  dilTuse.l.  where  ih.'  general  pr.ductivr,u-~  of  lab..r  is 
Hreat!  an.l  uheie  the  rate  uf  wages  is  hi;;!i  1  ikc  the  irnnvlh  ui 
interest  pure  au-l  SUnpic,  their  ..crease  is  ih,'  co.,<e.|M  l.rr  ol 
large-.scal,.  producti.m  and  of  advanc.ig  p..|.uhiion.     Tiny  are 

mme  readliv  suiijecl   in  Ii'HuiafiuM  aiid  i  ;ii  i  ;inni;i:t   t:^^;  'S\'-"---  . 

,1  1  .uce  are  not  .so  inevitably  the  consequences  ..f   mod.'rn 


J^^^Cj^-y  Ti'fyj 


f^^^-'-^^^mi^^' 


&^ 


GLXEllAL   WAGES' 


207 


industry.  But  sonio  dcsrco  of  acrontuation  in  incquulitj'  sooms 
uii!iv()i(lal)l('  from  this  cause  also.  An  cnlargcrncnt  of  the 
leisure  class  and  a  diminution  of  tlie  proi)or(ion  of  ineonie 
f';oin}i;  to  tl)e  laiiorers  are  tlie  natural  eoueomitaiits  of  material 
prof^ress  uu  ler  liie  system  of  private  jjroperty. 

§  <>.  The  (ioetiiiK"  stated  in  this  chapter,  that  wa^es  depend 
on  the  discounted  marj^inal  pioduci  of  lal)or.  will  seem  to 
many  i;erson'<  a  tlim  and  ahstract  one,  remote  I'rom  the  i)roli- 
leins  of  ie;il  liie.  Any  theory  conceininj!;  fjeiieral  wajiies  nnist 
den!  with  ili>lant  forces  ai\d  nelMilous  conseiinences  ;  it  has  of 
neces>ity  an  appearance  of  unreality.  Partly  for  this  reason, 
m;u\y  economi-ts  li;i\-e  refrained  fioni  undertaUinii;  a  fjeneral 
st.'iteiiient.  ^'et  this  defect  is  inherent  in  almost  all  the  doc- 
trines on  the  ulliuuit(>  causes  u\'  lar^e  ecoiioiinc  plienoinen;). 
The  ■•.".me  apparent  lack  of  comiectioa  with  the  details  of  in- 
diistri.al  life  njij^'ars  in  the  jiropositions  that  interest  is  dcter- 
mine(l  hy  the  rehitidit  Ictweeii  m;iiii,inal  i)roductivity  and 
marginal  sa\  infj; ;  that  the-  .|uanlit>  of  tlie  <'irculaliiiR' medium 
determines  the  .ijeneral  raii^je^  of  price-^ ;  that  the  ei|uilihrium 
of  international  demand  determines  the  \ai\ins  mnney  incomes 
ami  price  level-  of  dilT(>rent  cinmtrii-.  All  these  propositions 
search  out  trulhx  which  are  of  diiect  and  (iractical  coiu'ern, 
evi'u  though  they  slate  tendencies  which  are  slow  movim^  and 
liKiMi  up  indi-tinctiy.  Like  the  (ith<'r<,  the  doctrine  here  pri'- 
sentcd  ciincclllill!',  Jieliera!  U;iue--  colividel's  ultimate  forces;  .and 
these  are  the  \  el  \  force-  \v  hich  nni-t  he  -catuied  and  weighed 
in  any  i  iideavors  to  I'ai-e  the  niiieral  I'ate.  An  idl-emhracint!; 
and  coicidei'alile  advance  I'.in  cnnie.  under  the  regime  of  o'-iv.alc 
prnperty,   only    if   ni'nihn  ti\  ily    i-   increasfd,   if   tlie  ,n    i< 

l.cyii!  up.  if  the  di  iniint  \<  narrowed  hy  the  accumuia  ,.ii,  and 
ciiinptiit  jini  (if  capital.  I  !\  ers  thini',  that  laiM-s  the  productiv  i' 
marji'.i,  Ih.'it  le--i'ns  th''  !;iii'  o!'  di-i'oniitiim.  I'Mid^  \<>  rai  > 
w,'!!-;!'.:  and  in  the  la-t  c  oi'l  it  i-  niily  ill  Ihe-e  ways  that  a 
(iciicral  ad\ani'e  ca'    lie  lirtiU'dil   .alniut. 


;:i:!i;-.    w;    .-t    mv; 


proMiiieiit    in    the   cnnlitidii   of   the   ma--  of   mankind'.'      Tl 


mm^^m^f 


■:i^T^^'f^- 


mmm-^mmw'^ 


r-y-.Ki.: 


'^'^K 


m 


208 


THE  DISTRIBUTION   OF  WEALTH 


Mil 


'•»! 


St 


usual  i;it(>  of  \va!!;('s  for  ordinary  labor  in  tho  Unitpd  States  is 
now  not  far  from  S"<()0  a  year.  This  is  much  better  than 
suvaj^ery,  mueh  better  than  what  most  ini  have  been  able  to 
{ict  at  almost  any  time  in  any  country,  i'et  it  is  much  less 
llian  is  needetl  for  a  life  that  seems  to  the  more  fortunate 
minority  worth  liviiif!;-  It  K'ves  .ittle  margin  above  the  bare 
physical  needs,  li  de  chance  for  leisure,  for  s|)ontancous  activity, 
for  culture,  for  full  development  of  personality.  If  no  more  is 
in  prospect,  the  institution  of  private  property  stands  not  oidy 
on  the  defensive,  l)ut  in  a  position  that  cannot  louR  be  defended. 
Vet  something  better  is  by  no  means  incompatible  with  the 
••ystem.  We  may  hope  for  a  srJidual  rise  in  jjeneral  wa;:;cs, 
under  the  influence  of  the  forces  considered  in  tlie  precedim^ 
panics,  above  all  from  the  forward  march  of  the  technical  arts. 
(Jrcat  as  the  advance  of  the  arts  has  been  duriu}?  the  last  cen- 
tury or  two,  it  may  be  even  greater  during  the  centuries  to  come  ; 
and  the  main  strength  of  the  individualist  and  capitalist  systi-m 
is  that  it  promotes  industrial  progress  more  elTectively  than  the 
rival  system  of  collcc  livism.  It  is  at  least  an  open  question 
whether  it  will  not  bring  in  time  a  ditTusion  of  comfort  and 
economic  security  among  tiie  masses  greater  than  can  be 
attained  under  any  other  form  of  industrial  organization. 

That  tills  end  may  lu>  attained,  it  is  necessary,  first,  that 
viTv  coiisiderali'e  modifications  shall  be  made  from  the  tra- 
ditional rules  and  limits  of  the  system  of  private  jtroperty; 
and  second,  that  the  mnnbers  of  the  manual  laborers  shall  not 
iniTcase  so  fn  t  as  to  swallow  up  all  the  possibilities  of  gain. 
The  lir>t  of  the^e  niiidit ioii-i  will  be  coiisiilered  in  the  two  later 
Hoolv-,  on  Prnlileni-^  of  Labor  and  of  llconomic  Organization. 
The  second  will  be  ci«n>idered  at  once,  in  the  chapters  inune- 
'liately  following. 


mm^m^^m^^:  -"fmm^: 


CHAPTER  52 


Population  and  tiik  Supi'ly  ov  Lahou 


§  1.  The  supply  of  lal)or  dcpcnils  on  tlic  increase  in  the 
iiuuihers  of  mankind.  The  prol»leins  conccriiinfi;  the  growth 
(»f  i)opiilation  hear  not  only  on  the  (listril)iiti(in  of  wealth,  hut 
on  other  parts  of  economies  also,  not  to  mention  wider  social 
(luestions ;  and  there  is  diverKcnce  of  pracliM'  amoiiK  econ- 
omists as  to  tlie  |)laee  which  they  sliould  have  in  the  evposi- 
tion  of  the  suhject.  Population  is  considered  in  tliis  hook  at 
a  later  sta^e  ,haii  is  often  assiji;ne(l  to  it.  Ailliou|j;h  di>cussed 
in  the  followinR  i)aKes  m.'iinly  in  connection  with  the  theory 
of  distrihution,  it  will  lead  to  some  dij^ressions  from  that  topic. 

A  lon^'  controversy  has  heen  carried  on  re<>;ardinn  the  Mal- 
thusian  theory.  In  the  early  i):irt  of  ttn'  nineteenth  century  ' 
M..'i'  s  set  forth  tliat  ttie  cause  of  lou  wanes  and  of  poverty 
lay  in  the  larm'  numhers  of  mankind  ;  that  there  was  a  tenileiicy 
of  i)()pulation  to  ])ress  n|Miii  sniisisteni'e  and  keep  wa«es  low; 
f'.J  a  ri-f  in  wa|.'.es  eoulil  not  take  ))lace  ui\li'ss  tiie  tetnlency  to 
increase  amonn  the  laliorinjr  classes  was  liecked  ;  that  in  the 
uhsence  of  a  check  no  plans  for  imi)rov"ment  in  I  lie  condition 
of  the  mass  of  men  had  any  prospects  of  success;  and  that 
for  these  reasons  all  proposed  n'ornanizalions  of  society  were 
doomed  to  failure.  Moreover,  Malthus  was  noi  hopeful  that 
any  salutary  check  would  in  fad  l>e  appiicil.  It  cannot  he 
said  that  he  was  hopeless;  hu>  the  drift  of  his  teachiufi:.  'I'lil 
certainly  the  point  of  view  of  hi-  followers,  was  tiial  the  num- 
her  of  lal)orers  was  !ikel\  .o  increa-e  ver,\-  rjipidly  ami  iliil 
wajres  would   proluihly   1h'   kept   di  wn   to  a   suhsi-iruce  levil. 

'Till-  Ki'flilltl  r<|ilj.iM  i.f  tlic  h:y<.ll/  nil  I'l.lnlili.-,  ,|SI1.1)  i^  ll,:M  III  uIlL  U 
MultllllK  Htntcll  lli-4  l|i>.Hl||i-<  III  til,.  l.ilMI  ill  Vslll.ll  llli  \  I'.illllllU.  ,1  I.,  i.,'  lli:ill|. 
IllilH  cl     l'.\     llilll    mill    tli^    fc,l|.HM|4 

vol,.  II       V  '-HH»^ 


210 


THE   DISTRIBUTION   OF  WEALTH 


<  ] 


In  this  state  of  farts  lie  fouim  a  serious  ohstacle,  almost  an 
insup  I'  ol)sta<'le,  to  aii\  p;reat  iini)rovemiiit  la  tlie  material 
welfj!       '1  (lie  mass  of  maiikiuil. 

Some  parts  of  Maithus's  ti'acliiiiij;  liave  Ix'en  sustained  l>y 
the  (■our>e  of  thoup;lit  >iiiee  hi>  time.  Man  i>  an  animal,  physi- 
oloniealiy  lil<e  any  other;  and  tlie  i)o»il)iiitii's  of  his  increase 
in  nunihers  are  as  unhmited  as  tiiey  are  for  any  form  of  hfe. 
It  is  an  odd  eireumslanee  that  Darwin,  readin;;;  .Mahhu>'s 
Essay,  was  led  to  the  rellection  tlia(  not  man  only,  liut  any  sort 
of  ereature,  has  the  possibility  of  indeiinite  increase  ;  and  hence 
reuelu'd  the  conclusion  tliat  tiiere  is  an  unceasing  strufii;le  for 
room  and  sustenance,  and  a  survival  of  those  hcst  al)le  to  cope 
witli  their  surroundin^.s.  Darwin's  own  wider  conclusion  tlien 
reeiiforced  Maltiius's  views  as  to  the  liuman  species.  The  ( le- 
phaut  can  ilouhle  his  nmnhers  every  one  hundred  years,  man 
every  twenty-live  years;  cats  can  lirinji  forth  sixfold  twice  (»r 
thrice  a  year,  and  lishcN  can  reproduce  hundnds  and  thoii--au  !s 
of  their  kind  each  season.  Any  >pecies  that  nuiitiplii^  at  it; 
u'aximimi  rate  nuist  eventually  outrun  the  means  df  .■>uli'^lsteiiee. 

§  2.  Let  us  look  more  clo>e!\  at  tlie  po»ilile  incrca.'e  in 
human  numliers  and  compare  it  with  the  late-^  of  inctca^.e 
which  we  actually  find.  The  po>>ilile  increase  must  depend  on 
the  pos!-il)h'  excess  of  the  liirths  oviT  the  deaths.  The  maxi- 
mum birth  rate  in  a  normally  constituted  population  is  .it  lea.-t 
4.")  per  URHI;  that  is,  for  every  lODtl  livinu:  persons  there  may 
be  as  many  as  {'>  births  each  year.  If  a  population  were  made 
up  solely  of  men  and  women  of  the  repr(iduiti\c  ay,es,  the 
rate  niiRiit  lie  for  a  brief  time  \ei\  nunli  hinher.  If  a  popu- 
lation coiilainetl  merely  .an  .'ibiKirinal  pKpporlinn  df  per-cn- 
of  these  ajics  (as  is  the  ca^e  in  re;,;!iiiis  where  there  is  ii  >teady 
iiilhix  of  alile-bodied  iminij;raiit - 1 ,  the  r.ale  ;i!;,ain  miuht  be 
considerably  hinhei'.  I!\cu  for  a  iit>i'inall\  coii.-tituted  popula- 
tion, with  the  due  proportion  of  i  hililren  and  ajjed,  the  linure 
•ir»  is  below  the  phy^iolo;iic;d  iiiaMmum.  That  maximum  is 
probably  as  liinii  a>  ."iK  per  IDIKI,  po->ibly  higher.  I'or  the 
present    purpose,    that    of    comparinji    po-.iblc    increase    with 


POmLATION   AND  TUE  Sl'PPLY   OF   LABOR      211 

actual  increase,  it  will  l)e  best  to  take  the  fij^ure  which  certainly 
can  l)e  readied,  —  say  lo  per  lOUO  in  each  year. 

On  the  other  hand,  the  inininiuni  death  rate  is  certainly  as 
low  as  ].")  per  1000  each  year.  Here,  too,  a  normally  constituted 
poimlation  imist  l)e  assuMie(l.  A  population  having  an  undue 
share  of  persons  in  the  prime  ol'  life  would  easily  show  a  lower 
death  rate;  while  one  having  —say  as  the  result  of  emigration 
of  the  ahle-hodied  — an  undue  share  of  very  old  and  very  youny; 
would  hardly  li(>  al)le,  even  under  the  most  favoral)le  condi- 
tions, to  show  a  rate  so  low.  In  a  normally  constituted  popu- 
lation a  rate  as  low  as  this  is  certainly  p(i>suiie.  Some  such 
n,':;ure  as  ].")  per  lOOO  would  he  found  if  all  preventilile  causes 
of  death  were  done  away  with;  if  there  were  no  deaths  from 
curabh'  diseases,  and  none  due  diicetly  or  indirectly  to  poor 
nourishment,  insudlcient  cnre.  uu'-.mitary  surroun<lin!2;s  ;  if  the 
end  came  only  in  ixaeeful  old  aije.  or  from  disease  which  could 
111'  i)revented  by  no  cnre  and  no  medical  skill.  Indeed,  if  all 
these  possiliililies  were  realized,  the  rate  would  certainly  he 
lower.  There  are  jioimlat ions  in  which  a  rate  nearly  as  low 
is,  in  fa<'t,  found  ;  ami  it  is  certain  that  in  these  there  are  many 
deaths  which  cmild  have  been  pri'vented,  ?»Ie(lical  science, 
moreover,  is  rapidly  .idxaiicinji.  It  h,is  very  greatly  lowered 
during  the  past  fieneratioii  the  death  rate  from  infectious  and 
contagious  diseases  ;  it  may  reduce  as  markedly  that  from  the 
orj;aiiic  mid  dejicm  rative  diseasis  which  are  most  fatal  for 
adults.  The  miniiiiiim  deatii  rate  may  be  exj)ected  to  be- 
come lower  and  lower.' 

\o  race  or  cumitiy  concc'-niiin  which  we  have  accurate  in- 
ftivmation  (\hiiiits  either  the  maxinium  birth  rate  or  the  mini- 


I    N'.nvK     »     III.  ,|      ll.li.ilH.     .HI. I      I    i;    l'll\'     l-M'lwillU    lltir.H,     i|||o     «llirl|      |>ll-,ijn-'    ill 

111.-  piiMi.-  ..I  III,   .11     llu.  km.'  ,|iM„  ,|.   ,ili  i:,(,w   I..  |,,vv  a^  Um  Ct  i'"'  I'""'        1''"  -" 

r.l(.-,«    ,ip  ill.  lini-   -  !■  1!   n|.  i|    i  ■  i\  I   |-;ii-.-  nf  Ilil'i-Ulll  l|i^lllllfl|ll|i«-  .     llir\      in-    ilU' 

mlll-ll  lliil   .  AplMJln  i|   li\    111.1'  rill. I    '    III    lllf    linuii  ,..)    Ill   Ihr   lllimiu'f   nf    Itlf  Munilll 
|>l<i|»>l  ll'ill   iif  rlilliln  II    ilnl    llli'  III'.  i|.     llll'illil   wlliilll   Illiil'l.lllt.V    in  uri'llll'nl. 

Il  H  ri|'i. It'll  lliiit  III  \i  vv  /iiliii'l  :i  il'iilli  nil''  II.  iiiil>    1(1  piT  UMXl  «ii  fi'iiml 


.*...!    f,...    1. 


i-\i  riitimiiil  imc  ill-Ill'' ilii'ii   I  \'  'A    'ii'l'ii.  ■<   \'it:il  Shil' Jiri,   |i    HM.      Sii.-ti  il  nil. 
il  I  \li,i..t.liii:iiil ,    Inu,  .Mill  r.iiN'  1  --11  i.i.  mil  i.l  i|.  I    .  I  im-  .  i  iinliiin. 


212 


THE  DISTRIBUTION  OF  WEALTH 


mum  death  rate  as  horo  stated.  But  for  the  broad  condusiona 
with  which  we  are  cuiu'erneil,  it  is  not  necessary  to  be  precisely 
accurate  as  to  t!ies(>  extremes.  It  sudices  to  indicate  how  wide 
is  the  possible  variation  between  the  liirth  rate  and  the  death 
rate,  and  how  great  is  the  p()ssil)le  increase  of  population.  If 
births  are  to  per  lOOO  annually,  an<l  deaths  Imt  15  per  1000, 
the  excess  of  liiitlis  over  deaths,  or  increase  of  population,  is  30 
per  1000.  With  this  rate  of  increase,  numbers  will  double 
every  23  years.  Malthus  himself  deduced  .^  siinilar  possible 
rate  of  increase  from  what  h(>  found,  or  thought  he  found,  in 
an  actual  case.  "In  the  Northern  states  of  America  .  .  .  the 
population  has  been  found  to  doui)le  itself,  for  above  a  century 
and  a  half  successively  [that  is,  from  about  1050  to  1800],  in 
less  than  twenty-five  years."  Malthus  thought  that  an  in- 
crease even  more  rapid  might  take  i)lace,  and  that  the  doubling 
period  might  be  as  low  as  (ifteen  years.  This  probably  e.xag- 
gerates  the  jxitentiality  of  increase.  But  it  is  certainly  within 
the  bounds  of  possibility  tl.at  the  numbers  of  mankind  should 
doulile  within  such  a  period  as  has  just  been  indicated,  — in  a 
quarter  of  a  century  or  tliercabouts. 

Not  only  is  there  a  possibility  of  so  rapid  an  increase  a.s  this ; 
there  is  a  tendency  toward  it.  By  tendency  here  we  do  not 
mean  what  is  often  meant  by  the  term,  —  probability  that  in 
the  long  run  a  given  result  will  be  reached.  This  is  the  sense 
Ml  which  we  can  sa.\  there  is  a  tendei\cy  that  commodities, 
freely  produced,  will  sell  for  a  price  determined  by  their  ex- 
penses of  production.  In  speaking  of  the  tendency  of  popula- 
tion to  increase  ;it  its  n\aximum  rate,  we  mean  something 
dilTerenl,  tli;it  there  are  forces  in  operation  which,  unless 
counter.'icted,  will  bring  aliout  the  given  result.  In  the  .same 
way  we  >ay  that  there  is  tendency  for  all  bodies  to  fall  to  the 
eartii  ;  not  tluit  they  are  in  fact  likely  to  do  so,  but  that  they 
will  tmle>s  soiiietliiiig  jireveiits.  The  tendency  of  i)o|)ulation 
to  increase  results  from  tlie  reproductive  instin<'t  and  the  h)ve 
«if  jiarenls  for  their  <ilT>|)ring.  These  are  universal  and  |K)wer- 
fiil  force>.     They  'ip«rale  witliout   restriction  among  aninuils. 


-j^M 


POPULATION   AND  TIIi:  SUPPLY   OF   LABOR      213 


Each  species  of  aniinuls  tries  to  iimltiply  at  its  iiuiximum ; 
tries,  that  is,  in  the  sense  tiiat  it  will  do  so  unless  by  an  inter- 
vening cause  nutnhers  arc  kept  down. 

But  no  species  of  animal  can,  in  fact,  increase  at  its  maximum 
rate.  If  it  did  so,  it  would  in  time  crowd  out  all  others  and 
alone  would  occui)y  the  earth.  Xor  is  niiui  an  exception.  A 
continual  doulilinj;  of  his  numliers  CNcry  (piarter  of  a  century 
carnot  lake  place.  Only  under  exceptionally  favorinji  circum- 
slances  can  sueh  a  rate  lie  long  maintained.  When  a  ci\ili/ed 
population,  luuinK  the  tools  and  the  knowle(lji;e  ac<iuired  duriiif;; 
slow  centuries  of  ^rowin;^  civilization,  suddenly  comes  into 
possession  of  a  new  country,  it  finds  for  a  while  limitless  room 
for  i^rowth.  Such  was  t!ie  situation  in  the  North  .\merii'an 
colonics  during  the  pc  riod  to  which  Malthus  looked  for  an 
ex;imi)lc  of  the  ])o^siliilitics  of  increase.  Such  has  hccn  the 
situation  of  the  jieoplc  of  the  United  States  durinij;  the  i!;reater 
I)art  of  their  history,  of  llic  ("ana'lians,  the  .\ustralians,  \\h' 
Argentines.  These  arc  rare  ca>es  in  the  hi-*'>ry  of  the  hum;Hi 
species.  They  aic  aiialoj.',ous  1o  the  comparaIi\'ely  rare  cases 
where  u  new  anim.il  a  moth,  ;i  liird,  a  mammal-  migrates 
into  a  country  hitherto  ^lran^e  to  it,  ami  can  multiply  for  a 
while  without  (in<iing  its  food  sc.ircc  or  its  enemies  too  strong. 
In  any  long-settled  country  mankind  ciumot  increase  at  any- 
thing like  the  maxiiiii.iii  rate,  'i'hc  fuiulamental  reason  for 
this  is  to  lie  found  in  the  tendency  to  diminishing  returns  from 
the  soil.  On  any  ^i\iu  ;ire;i,  th.it  tendency  shows  itself  for  all 
agricultural  product  ,  It  ni;i>'  he  counteracted  in  some  degree 
liy  improvements  in  the  ;nt-.  P>ut  a  contimious  douhrmg  of 
mimliers  every  (piarte!-  nl'  ;i  century  nui>t  everitaidly  encounter 
t  he  olistacle  of  iucicii-ing  dilllculty  in  seeming  the  food  supply. 

The  tendency  toward  inerease  in  population  mn-^t  then  h' 
counteracted;  Mud  it  may  he  coimteracted  in  two  ways,  to 
which  Malthus  gave  the  irune^  po>ilive  .'Hid  preventixc  check-;. 
]\y  jxisitive  check-  he  meant  tlio^e  which  cut  down  numhers 
already  Imiught  into  the  ,vorld,  slarv.ation,  di>case,  war, 
misery  in  all  its  forms.      Hy  preventive  checks  he  meant  those; 


u 


214 


THE  DISTRIBUTIOX   OF  WEALTH 


Mf 


which  prevent  numl)ors  from  bein}i;  l)r()UK!it  into  tlio  world. 
The  first  operate  tliroii^;)!  a  iiigh  doatli  rate,  tlie  second  tlinMigh 
a  low  birthrate;  in  otiier  words,  the  first  tiirou^h  an  excess  of 
deaths,  the  second  throuch  ;i  limilation  of  liirths. 

It  would  not  he  ;  lin^  very  far  iistray  to  say  that  the  extent 
to  whi<'h  one  or  the  other  check  pn-vails  is  a  (est  of  the  advance- 
ment of  civilization.  The  (luesliou  is,  to  lie  siui',  rot  one  of 
yes  or  no,  hnt  one  of  more  or  less.  Mankind  rarely  exercises 
the  power  of  re])ro(luction  to  the  full.  Some  limitation  of 
births  apjiears  in  every  society  whicli  luis  ]»roj?;resse(l  beyond 
the  very  lowest  sta^e.  .\s  civilization  advances,  more  and 
more  forethouiihl  is  cxtMcised.  Amonp;  ail  i'l'dplcs,  there  is 
some  o]H'ration  of  the  ])ositi\'e  check  also.  lixccjjt  amonj;  a 
small  stratum  of  the  well-to-do,  more  beiii^is  are  brou,!!;ht  into 
the  world,  even  in  the  most  advanccij  countries,  than  can 
survive.  Numbers  are  kei)t  down  in  i).u1  by  a  death  rate 
needlessly  hiiA'h,  -- that  is.  a  dcatit  rat^'  aboxc  (he  niiuiiuum 
from  old  aire  and  iirem(MliaMe  diseae.  T!ie  inoi,-  there  is 
limitation  of  births,  the  hijiher  !-;  Ilie  jila:  c  of  civili/ation :  the 
mure  excess  of  deaths,  the  lower. 

§  !?.  \\ith  these  };eneral  principles  in  mind,  let  a  look  be 
takiMi  at  the  birth  rates  and  deatii  rates  fouml  in  our  own  day 
in  some  of  the  i>;'ii\cipal  countries.  In  tlie  foilowiiifi;  talile  the 
maximum  birth  rates  and  iiiiniinnni  death  rates  are  lirst  niv<'n, 
foi'  ready  comparison;  then  follow  (ii'jiie-;  for  (he  lairs  in  some 
selec(eii  ('(Mintrics.  The  "douMi  'ii'  ]>eriod"  nie:i  the  number 
of  years  in  which  ])o])ulalion  would  don'  !  il'  the  |.'iven  excess 
of  births  were  steadily  maintained. 

Note  the  wide  divergences  in  the  I'irth  rates.  IJoumania 
and  HmtKary  an<l  Saxony  ha\'e  rates  i;o(  \  eiy  nnich  below  our 
sni>i>ose(|  maximufw.  <Mher  coinitrie-;  ha'.e  markedlv  lower 
rates.  I'rance,  v.lii''h  conn's  al  (lie  lioltoin,  ha-^  a  liirth  rate 
about  one  hr.lf  that  of  |{oniniu.i;i  and  'Ini;uar\-.  On  llieoth'i 
hjitid.  there  are  di\'eriie!ice'»^  mImio-!  m^  s(  !'!l-,i!>ir  i!i  th.e  <leatli 
rates.  The  dealli  rate  in  i{(a;i"  inia  a'  d  llunsiary  i-^  nearly  l?() 
]air  thou^^and,  or  iwice  a-  \<.'\'0    a-  *'•••  •'  '    in\nni.     At  the  lo\",er 


POPLLATIOX   AND  TIIH   SUPPLY   UF   LABOR      215 


BiHTn  AM)  Di:atu  I{ati;s 

Anni.'ai.  Avi:iiAiii,-<  ri  :i  lOOi)  iir  I'oiTi. midn,  mu   jiii:  I'luiom.   ISdl-lJtlO 


Iliiinis 


M'lximntn 'ind  \titiinmm          i  45  (W.'.'.) 

I{()iiniania 1  JO.? 

IliiiiKiiry -10. t) 

Saxony    ]  •>'•••"> 

IJavaria :>ii.'> 

Italy    '  :5t.!t 

Pliifjlaiul  and  Wal.'s '  2!),!) 

SwcilfU '  -7.2 

Franco    -'_'.2 


Dl.iTllS 


HlltTiirt 


1  Ddiui.imi 

(in-    ViiAns) 


15    l-V/'"   )      i      JO  ^\!:,t) 


23 


20.:{ 

11.1 

(il 

2'.!.',) 

10.7 

().■) 

21.0 

!.-)..-> 

l') 

2.-..t 

11. 1 

(;2 

2}. 2 

10.7 

0.-) 

1S.2 

11.7 

59 

IC.l 

11.1 

02 

21..-) 

0.7 

y.M) 

end  of  tlic  list,  the  dcMtli  rate  sinks  to  much  more,  inodfratc 
fijijurcs,  — little  iilmvc  JO  per  thousaud  for  Fruin'o,  and  uoticc- 
ahly  below  that  li<2;ure  for  i'lnnland  and  Sweden. 

In  general,  a  higli  l)irlh  rate  is  accompanied  hy  a  hi'j;h  deatii 
rate.  Such  i.^  the  ca^'  with  all  the  count  lies  in  the  upper  ptirt 
of  the  list,  —  ill  Koumania,  IIuuKiii-y,  Saxony.  Bavaria,  Italy. 
This  eorropondence  of  hiuli  hirlh  rales  with  liifj;h  death  rates 
means  that  Malthus's  warniiu's  and  foreboding  are  applicable. 
Here  are  countries  in  which  population  is  pressing  on  subsistenee. 
It  is  trying  to  increase  faster  than  the  means  of  supj)ort  make 
possible,  iind  the  jio.-ilive  check  is  in  oix-ration.  Not  the  posi- 
tive check  in  its  ino^t  extnnie  form;  the  birth  rate  is  iiol 
ut  the  maximum;  some  limitation  of  births  there  is.  IJu! 
more  children  arc  born  than  I'aii  survive  and  lu'coine  adult  , 
and  more  persons  become  adults  thiui  can  survive  to  iieaceful 
old  W'^v.  The  populations  ;ire  ill  fed,  ill  clad,  ill  housed,  ill 
warmed,  ill  cared  for  in  Hckiicss.  IIun:;ary  and  Pioumania  aiv' 
ill  the  wor-l  ca-e  ;  Saxony.  P.ivaria,  atid  Italy  arc  in  a  liad  ca>c. 
In  all  the-^c  counliies,  an  indisi)ensab!e  condition  for  a  per- 
manent imjiroveiM'   li  \"  iiie  coiidilloii  of  tin'  ma>s  of  tPn-  jxijm- 


latioii   is  a  lowering  of   the  birth   rate 
prc>surc  on  the  inean^  of  supjtort. 


a  relaxation  of  the 


216  THE  DISTRIBUTION   OF  WEALTH 

In  such  countries,  the  death  rate  is  always  highest  among  the 
very  young.  Under  the  best  conditions,  the  period  of  child- 
hood is  one  of  great  sensitiveness  to  phj-sical  ills.  Even  where 
the  general  death  rate  is  very  low,  as  in  the  Scandinavian  coun- 
tries and  in  some  Australian  states,  ten  per  cent  of  the  childn'ti 
die  before  completing  the  first  year  of  life.  Between  ten  and 
fifteen  pc-r  cent  die  in  England,  France,  and  Massachusetts  and 
New  York.  Twenty  per  cent  and  uore  fail  to  live  one  year  in 
Austria  and  Hungary,  twenty-fivi'  per  cent  in  Russia;  there 
are  extreme  cases  when'  one  third  of  the  babies  have  died. 
Again,  taking  the  children  under  five  years  of  age,  we  find  that 
out  of  every  1000  born,  there  ilietl  before  attaining  the  age  of 

five : '  — 

in  Bavaria ;i93 

in  Austria 3S9 

in  Italy 378 

in  France '2.">1 

in  Engluiul  and  Wales 249 

in  Sweden 222 

A  high  death  rate  among  c'lildrc!!,  such  as  appears  in  the 
countries  having  the  high  birth  rates,  means  simply  that  babes 
are  brought  into  +he  world  wlio  cannot  survive.  It  means 
suffering,  with  never  a  chance  of  a  luipijy  outcome.  Those 
children  who  do  survive  and  grow  to  mature  age  must  face 
low  wages  and  hard  conditions  of  life ;  yet  they  in  turn  marry 
early  and  procreate  freely.  The  rouml  of  misery  goes  on  with- 
out ceasing. 

Consider  now  some  of  the  other  countries.  Note  first  that  the 
rate  of  iiierease-  the  exct>ss  of  liirtli,;  over  deat',is  —  is  (juite 
as  high  in  Kngiaiid  and  Sweden  as  in  the  other  eoHiitries,  It  is 
about  11  jjer  lOOO  aiuiualiy.  Hut  both  birth  rat"s  and  death 
rates  are  lower  in  SwimIcu  ami  ICngland.     Though  the  birth  rates 

'  FiKUro.s  of  lluM  f<oit  (Mil  I"'  fiiiiiiil  in  miiv  lidcik  mi  \  ital  ^'l:ai^'ti(•s.  Those 
licri"  <'iti'(l  niMV  III'  foiiiiil  ill  N'l'wsh  iliiir's  \'i!:il  sinii^iirx,  p.  i:l(l  (takrii  from 
itcrtillon),  itMiicy  H  Mmtirn  Sariiil  Cuiiililiniis,  p.  '_':'l.  Mini  tlic  MMSMuclmsi'tts 
Uccisfratioii  Hcporfs.  For  ii  conipMrnlivr  simms',  \m(1i  fiuiiri':<  for  ilir  I'nitod 
Sluti's. -in'  1".  It.  I'llrlps.  ill  Piililiidliiiiin  .{nitiiciiii  Sf'ili.^liml  Annnci'ilifii,  Dcocm- 
bcr,  I'.illl 


•«?N5«55 


POPULATIOX  AND  THE  SUPPLY   CF   LABOR      217 


are  higher  in  Hungary  and  Bavaria,  their  populations  are  not 
in  fact  increasing  faster.  They  are  trying  to  increase",  hut  are 
kept  down  1-  the  positive  check.  In  England  and  Sw^'den  the 
peopl(>  are  not  trying  to  increase  so  fust ;  the  birth  rate  is  lower ; 
the  prevenlive  clieck  is  in  operation  to  a  gi,'ater  degree.  Ob- 
viously, the  conilition  of  England  and  Sweden  is  much  the 
happier.  They  escape  an  innn(>nse  amount  of  avoidable  suffer- 
ing. If  their  birth  rates  v.-en  to  rise  to  those  of  the  other 
countries,  their  death  rates  would  almost  surely  go  up  in  some 
corresponding  degn-e.  Xumliers  v.-ould  not  increas.^  more 
rapidly,  but  would  simply  be  ])revented  from  increasing  through 
a  diiferent  and  more  miserable  process. 

The  fact  that  population  advances  with  >ome  rapidity  in 
these  happier  countries,  and  yet  do(>s  not  bring  with  it  high 
death  rates,  is  accounted  for  in  \-aiious  ways.  In  Sweden  it  is 
due  chiefly  to  emigration.  Such  figures  do  not  necessarily  stat(> 
what  is  the  actual  gain  in  uuml)ers  iu  tl>,e  several  countries; 
they  indicate  only  what  gain  wouhl  have  taken  place  by  internal 
growth.  The  final  effect  on  numbers  depends  also  on  the  inflow 
and  outflow,  —  on  inuuigration  and  emigration.  The  emigra- 
tion from  Swedcai  duiiiig  tli<'  period  under  consideration  was 
large  relatively  to  the  i)opu!ation.  Except  for  this,  either  the 
death  rate  woukl  have  been  higlier  or  the  birth  rate  lower; 
for  Sweden  is  not  a  country  with  such  jxjssibilities  of  expand- 
ing prodiu'tion  as  to  enable  its  numbers  to  grow  as  they  would 
have  done  by  natural  increase  alone.  It  is  to  be  noted  that 
some  of  the  other  countries  also  have  found  an  outlet  in  emi- 
gration, —  notably  Italy.  Had  it  not  been  for  a  great  stream 
of  emigration,  Italy  alstj  would  have  had  a  death  rate  even 
higher  thim  that  which  she  shows;  or  else  her  birth  rate  would 
have  been  smaller. 

Englatid,  too,  has  found  some  outlet  in  emigration;  but  not 
to  a  great  extent  (hiring  the  decade  to  which  the  figur(>s  apply. 
In  the  mai!!.  her  ov<>p-'-j  <-.f  !.!>f!v^ 


exeo--^;   t 


ViT    dcatiiS    h.lS    n 


actual  in 


cre.ise  of  the  numbers  in  the  countrv.     \ 


umller^ 


nave 


fl 


been  able  to  grow,  because  England's  powers  of  ,--odiietion  hav. 


218 


THE   DISTRIBUTION   OF  WEALTH 


kept  pace  with  thom.  This  could  hardly  have  boon  the  case 
if  Eng'.uid  had  supported  ih-m  :vm\  >uf)plie.l  tlicni  with  r::w 
materials  from  her  own  soil.  But  she  i-^  :i  ;^r(Mt  mauufacturiug 
country,  ohtaining  food  and  nuiteriuls  in  exchanj^o  for  exports 
of  manufactures  as  to  whicli  tliere  is  no  olistacle  fi-oni  di!niiii>':- 
ing  returns.  Ex(hanj>;e  of  this  ki:d  nas  the  l)asi~  of  l]n;j!an«: '■ 
advance  in  po!)ulation  and  weaMi  duria.t!:  the  ninety  nth  cen- 
tury. 80  long  a^  it  continues,  and  continue'  for  expanding 
nunilx'rs,  -she  can  maintain  a  hiiji  liirtli  rate-  and  }.et  a  lov.'  death 
rate.  When  growth  of  thi^  sort  slackciw,  —  when  it  hfconies 
more  difficult  to  buy  ever  increasing  food  '•npplio  l>y  exporting 
manufactured  goods,  —  England  mu'-t  have  either  a  lov.t  r  birtli 
rate  or  a  higher  death  rate.  T!u>  foruicr  alternatiw  will  almo-t 
certainly  be  chosen;  indeed,  a  shnkming  in  the  rate  of  growth 
has  already  shown  itself.  As  will  apprar  nion'  fully  in  the 
S(-quel,  this  is  the  mode  in  which  tin'  population-  of  all  the 
advanccHJ  countries  are  likely  to  -iToiuiui:  late  I'l.'ni^elves  to 
Condi  I  ions  of  greater  pres-^ure. 

Trance  is  the  classic  country  <ii'  tjie  prevcniive  chrck.  Her 
population  has  been  praitica!!'  ■^tali'inary  fur  two  or  three 
decades;  or  rath(M-.  it  ha-  fa':-'l  to  grow  1>\-  natural  increa.-e. 
Such  slight  gain  in  Mtal  nurn'M'--  a-  appcarrd  ha-  been  due  to 
immigration.     Tin    deatli  ra!'    in 

might  well   be.      In    r.art.    1  ii 

di'ath  rate  tna>'  be  a"''onn'cd  ;  .i-  ! 

lation    having    Iiccm    for    ^oui'       m 

brings  about   an     .■;•■    li^-trib      on 

number  of  oM'        ^  r-i.n-,  an' 

higher.     I'ait    n        a  -^^  1  ruo 

prosperous  rnin;  -a  ,     >'!  ba- 
in her  p(tpu!a!  "11     \"    a  in  i 

tions  of  life  a r 

ib!(>  caU'Jes.      "  i  i 

and  her  jiopni:  -r-  1  ti=»' -    m       •->— 

pecially  in   the  p-ii    -liio"- 

nentlv  tl.ritM'.  -c     :•(--- 


"ranee  1--  not  a--  low  as  it 
.,',  lier  coiniiM-itively  high 
itie  mere  !':.  !  ot'  her  popn- 
!•  n  irly  stationary,  'i'liis 
■>'it !    a   eiuni'   ratively  large 

:P       Ih-  ■< 


-tl 


I 

11 
on 
In- 


','.  rate  mu-t  be 
■'ii  a  fii'eat  and 
-  •   a  ■'       strata 

lii  a  liie  con.r- 
d         to  pn'VCMll- 

;      •■.hole  i'-  1(    '•, 

f  -(■'Uees.       ]■/-■ 

'■    ".'■(.  i--  omi- 
110 1  in  every 


POPULATION  AND  THE  SUPPLY  OF  LABOR  219 


respect  in  a  condition  thorouj^hly  satisfactory,  hut  vastly  liappior 
and  more  prosperous  than  that  of  Italy,  Hungary,  or  Saxony. 
For  the  United  States  as  a  wiiole,  trustworthy  figures  of 
births  and  deatlis  are  kicking.  The  Census  authorities  state  a 
birth  rate  of  35.1  per  lOUU  for  this  country  in  the  d(>cade  1800- 
1890,  and  a  death  rate  of  17.7.  But  I)oth  figures  are  open  to 
suspicion.  The  death  rate  is  stated  on  tlie  ha>is  of  inadequate 
census  returns  ;  and  the  hiilh  rate  rests  on  couiphcated  calcula- 
tions, in  which  the  uncertain  di'atti  rate  enters.  It  is  to  be 
e.xpected  that  a  country  wliose  opportunities  for  economic 
growtli  arc  such  as  tlic  United  Sl;itcs  po.-scsscs,  should  have  a 
high  birth  rate;  whi!  general  pro.sperity  and  eas(>  would  lead 
one  to  expect  a  relatively  low  death  rate.  But  the  United 
States  is  a  very  heterogeneous  c(juntry,  ;uid  any  general  averages 
for  its  vital  statistics,  even  if  based  on  accurate  figures,  would 
l)c  of  uncertain  significani'c.  The  birth  rates,  for  e.xanii)le,  of 
the  colored  population,  espociully  in  the  South,  are  high;  tlio 
deaih  rates  here  are  also  high.  The  colored  population  is  in  a 
condition  analogous  to  that  of  Kouniania  a!id  Hungary.  The 
wliite  po])ulatioii  of  the  South  also  has  a  high  birth  rate,  and  a 
comparatively  high  death  rate,  though  by  no  means  so  high  as 
that  for  the  negroes.  In  tin  <  i  utril  and  Western  parts  of  the 
country  the  birth  rate  ])robably  ■  relatively  high,  the  death 
rate  low.  In  the  l^a■^teru  -tates,  and  esj^'cially  in  New  England, 
the  liirth  rate  is  conii)arative!y  low.  Thus  in  Ma.~<sachusetts, 
in  which  state  alone  accurati  regi-t ration  has  been  continuously 
maintained,  the  liirlh  rate  ha-  been  lor  >ome  decades  not  far 
from  2."»  per  101)1).  'I'lic  death  rate  in  that  >tate  lias  been  low, 
from  17  to  1!)  pei-  10(10.'     Hut  here  again  the  i)opulation  is  not 

'Till'   liictli  r.-itis  aiiil  ilcii'li  ral' -   in    M;i.--^;ii  lui.-ii'ttH  Imvc   Imi'Ii   as   foll(>\v<. 
;iri;iiiL' (1  fill  liuiiiiiiii  aiii;il  p.  r;^!,: 


•)  ye  irs  (  iiMiML'  1  "N^D 
/)  yi'iirs  cii'liiir  l^s.> 
•'">  yi'Mr     .     ullii;   IN'MI 

6  yiMTH   I'lllllTlir    IM'.'l 

f)  yrars  rmliim  Iimmi 
S  yiurn  itiiliint  l'M)!i 


nirirtis 


•J.'), 1 1 

i;.").s 


2l:i 


l)r:\nin 


1^> 
!'.)> 
I'.ll 
19.H 
ISO 
16.4 


220 


THE  DlyTRIliUTlON   OF  WEALTH 


homogonoous,  and  the  figures  need  to  be  interpreted.  Massa- 
chusetts has  had  a  steady  iiiHow  of  iininiKnints ;  hence  her 
population  incUulcs  an  unusual  proportion  of  people  in  the 
prime  of  life,  wliich  in  part  accounts  for  the  low  death  rale. 
On  the  other  iiaud,  there  is  a  marked  difference  between  the 
foreifj;n  born  and  the  native  born.  The  birth  rate  is  very  much 
higher  among  the  foreign  born;  while  among  the  native  born 
it  is  remarkably  low,  —  a  phenomenon  of  which  more  will  be 
said  pres(>ntly.  The  variations  betwe(>n  diiTerent  parts  of  the 
United  States  are  as  great  as  those  l)etween  diiTerent  European 
countries. 

§  4.  High  birth  rates,  high  death  rates,  backward  industrial 
conditions,  low  wages,  —  these  commoidy  go  together.  But 
which  is  cause  and  which  is  elTect  ?  The  unqualifie<l  Maltlmsian 
view  is  that  the  pressure  of  population,  indicated  by  a  high 
birth  rate,  is  the  cause  from  which  all  the  evils  How,  and  that 
the  one  effective  mean  of  imjjrovenieiit  is  a  lowering  of  the 
biitli  rate.      Hut  the  situation  is  not  (piite  so  sim])le  as  this. 

lligli  birth  rates  and  misery  are  largely  interacting  causes. 
A  high  l)irtli  rate  commonly  means,  in  an  <ild  lountry,  misery; 
and  misery,  in  turn,  oft(ii  increases  the  birth  rate.  When  a 
people  is  poor  and  sees  no  prospect  of  escape  from  poverty,  it 
is  in  danger  of  becoming  demoralized.  Multiplication  takes 
place  without  thought  of  the  future,  since  the  future  seems  in 
any  case  without  hope.  That  very  multiplication  shuts  tho 
'!'>ur  to  iiope.  in  modern  titncs,  such  a  fatal  round  of  inter- 
aeting  causes  ofli'ii  appears  in  maimfacturiiig  ilistricts  where 
tliere  is  much  einploynu'iit  of  women  and  children:  as,  for 
instance,  in  the  textile  districts  in  Saxony  of  which  Chemnitz 
is  the  center.  There  women  atid  children  olTcr  tlieniselves  for 
cniplovnient  liecaiise  people  are  many  and  wages  are  low. 
The  very  opportunity  for  Necuring  employnirnt,  on  Itie  otlier 
hand,  promotes  multiplication,  since  the  income  of  the  f.unily 
is  ek"  '  out  by  tlie  earnings  of  mother  and  ollspring.  Where 
such  eonditi'ins  ha  •  esiabiislied  tiiem-cives,  li.c  way  of  escape 
to  Bometliiug  belter  is  hard  to  lind.     The  causes  (tf  dt-morali/.a- 


POPULATION  AND  THE  SUPPLY  OF  LABOR     221 


1 

4 


tion  and  misery  become  cumulative.  Even  in  countries  where 
the  general  conditions  are  good,  there  is  commonly  a  hnv-lying 
stratum  of  the  population  in  which  tiiere  are  high  birth  rates, 
higli  death  rates,  pressure  for  employment,  low  wages,  —  con- 
nected phenomena,  yc>t  no  one  the  certain  cause  of  tlu,'  other. 

None  the  less,  it  is  clear  that  restraint  on  the  increase  of 
numbers  is  one  essential  condition  of  improvement.  Stated 
in  tliis  way,  the  Malthusian  pro])osition  is  impregnable.  A 
limitation  of  numbers  is  not  a  cnitsc  of  high  wages,  but  it  is  a 
comliliun  of  the  maintenance  of  high  wages. 

High  wages  (h'[)end  fundamentally  on  high  productivity  of 
industry.  In  new  countries,  where  the  increase  of  population 
is  not  confronled  by  limited  natural  .sources,  and  where  capital 
also  increase's  r.ipidly,  the  laborers  may  multiply  fast  witiiout 
having  to  face  harsh  terms.  .\  long  period  may  elapse  before 
signs  of  pressure  appear.  But  in  countries  already  well  peopled, 
the  fundamental  limitation  from  din\inishing  returns  on  land  is 
ever  l)resent.  Unle.  there  be  some  exercise  of  the  preventive 
check,  no  measure  towanl  general  improvement  can  be  elTective. 

Hut  mere  e.vercise  of  the  iireventive  check  can  uccom|)lish 
nothing.  Only  if  there  be  tlie  other  conditions  needful  for 
j)rosperily  —  iinprovtinents  in  tlie  arts,  increasing  capital, 
greater  productivity  of  industry-  will  th(>  general  social  in- 
come, and  wages  as  p;ut  of  that  income,  show  a  tendency  to 
rise.  Then  restraint  on  nmltiplication,  though  not  in  itself  a 
cause  of  gain,  will  entible  the  gain  to  be  mair'»ained.  It  is 
certain  that  if  population  increases  at  its  muxinnnn  rate,  or  any- 
thing like  that  inaxiinuin,  hluh  birth  rates  will  bring  not  only 
high  diulh  nites.but  low  wages  also.  Hut  if  tli(>re  be  forces  in 
operation  which  raise  the  productivity  of  industry,  a  lowend 
birth  rate  will  enable  more  favorable  conditions  to  be  attaimd 
and  held. 

§  ').  The  stan<lard  of  living  is  often  spoken  of  as  the  funda- 
mental cause  detertuining  wages.     Titer.        a  sense  in  which  it 

its  effects  on  numlMrs.     \  high  stamhird  of  living  does  not  in 


I 


222  THE  DISTRIBUTION  OF  WEALTH 

itself  increase  wag  .>s.  It  may  serve  to  lower  or  to  keep  low  the 
birth  rate,  and  thereby  create  one  of  the  conditions  on  which 
the  maintenance  of  high  wages  usually  depends.  But  unless 
the  other  conditio.is  are  present -a  large  demand  for  laborers, 
which  comes  at  bottom  from  a  large  productiveness  of  mdustry, 
—  a  high  stamlard  of  living  brings  nothing  to  pass. 

There  are  curious  fallacies  on  this  subject.     A  notion  is  prev- 
alent among  many  workmen  of   the  upper   tier   (mechanics 
and  the  like)  that  cheap  living  is  bad  for  them  and  free  expendi- 
ture g()o.l.    Tlu'v  suppose  that  if  they  economize  (use  cheaper 
food,  for  example)  advantage  will  somehow  be  taken  of  them 
and  their  wages  reduced;    whereas  if  they  "live  well,     that 
their  wag.'s  will  be  kept  up.     Hence  persons  who  propose  eco- 
nomical  wavs  of  using  ami  cooking  materials  for  food  are  sus- 
pc.ct..d  of  iHiug  in  a  covc>rt  conspiracy  to  bring  down  wages. 
Nothing  is  nmiT  irrational.     Every  way  of  getting  as  much  as 
possible  with  your  income -of  so  directing  expenditure  that 
the  maximum  of  utility  is  secured  for  each  outlay  -  serves  to 
increase  tlu^  efTectiveness  of  the  forces  which  make  for  pros- 
perity.    What  the  lal)orers  get  depemls  in  no  direct  way  on 
wiuit    they  spend,  or  .m  their  standar.1  of  exiK-uditure.     It 
,lq„.nds  on  their  numbers  as  one  factor;   and  the  stamlard  of 
living  has  an  elTe.t  on  thi-ir  wages  only  in  so  far  as  it  has  an 
offset  on  their  miinbers.     Some  eeommiists  have  been  no  less 
Kuiltyof  confu  iun  ..n  this  t..pic  tiian  the  laborers  themselves. 
They  have  <lisru.sed  the  standard  of  living  as  if  it  were  a  forco 
ttitlng  directly;   whereas  it  acts  only  in.lirectly. 

This  proposition,  like  s..  many  oth.rs  in  eonomics  that  are 
...M.ntiallv  true,  needs  son..«  .lualilicalion.  It  is  true  that  a 
hini,  MuMdard  of  living  .MMcises  an  Millu.Mice  on  wagen  cinelly 
through  Its  rlT.ct  on  numbers;  y.'l  it  does  have  some  <-ffect 
al<o  ....  Un-  l.a.gai..ing  p.oc.  ^s,  The  first  sl.-p  in  the  Kettjement 
of  tl»«  \>ag.s  of  hiird  lalH.rers  i.s  a  contract  with  an  employer. 
All  w.rts  of  fa.tois  Lear  on  the  contract ;  not  only  laU.r  organi- 
lations.-of  whi.h  n.ore  presmtly. '  — but  istablishcil  tradi^ 
'Mie  Hook  VI,  lh«ptif  64. 


■iigar 


((■'^■'^J'ywrr^, 


POPULATION  AND  THE  SUPPLY  OF  LABOR     223 

tions  as  to  what  are  "fair  wages"  or  "living  wages."  These 
are  vague  and  often  question-begging  phrases;  men's  notions  of 
what  is  just  pay  or  living  pay  are  usually  settled  simply  V)y  the 
rate  to  which  they  are  habituated.  But  the  fact  of  habituation 
counts  as  one  of  tlie  elements  in  l)argaining.  An  estal)lished 
standard  of  living  will  cause  workm(>n  to  stick  more  stulibornly 
to  a  demand  for  what  they  regard  as  dacent  wages.  Within 
the  debatable  ground  subject  to  the  higgling  of  the  market,  a 
high  standard  of  living  thus  may  have  some  direct  effect  on  the 

outcome. 

Though  a  high  standard  of  living,  showing  itself  in  a  lowered 
birth   rate,  establishes  itself  with  dilFiculty  in  a  poimlation 
steeped  in  poverty,  the  difficulty  of  raising  the  stan.Iunl  is  not 
so  great  as  many  of  the  older  writers  supposed.     Tliey  tl>()ii:;ht 
that  a  real  advance  could  come  only  by  some  sudden  uplift, 
giving  time  for  the  establishment  of  new  habits.     From  this 
point  of  view,  the  outlook  gave  little  hope  ;  for  nothing  is  morc^ 
difficult  to  bring  about  than  a  sudden  great  clinnge  in  >ocial 
an<l    material    conditions.     Happily,  this    opinion    has    be.-n 
shown  by  the  course  of  recent  history  to  l)e  imfounded.     During 
the  last  generation,  there  has  been  in  the  more  advanced  coun- 
tries a  slow  an<l  gradual  improvement  in  welfare,  and  witli  it  a 
slow  and  gradual  fall  in  tl,e  birth  ratcv     All  the  leading  <'oun- 
tries  show  a  d(<clining  birth  rat(>,  sj.le  by  >id(>  with  a  .leath  rate 
declining   still    more.     The  change  is  mo>t  unmistakeable  (as 
will  presently   app(  ir)   among  tlie  wll-to-do,   bnt    it    ajipears 
also  in  the  upper  strata  of  the  workiiigmen.  and,  tliongh  m.ire 
faintlv,  among  the  lower  tier<  of  the  laborer^.     It  is  gradnallv 
affecting  all  classes  an.l  all  enunlries.     It  i^  both  a  can^e  aiwl  a 
result  of  gr.  ater  i^wperity.  and  both  a  ei»iiH>  .and  a  result  ot  a 
higher  standard  of  living.     H  I'ids  fair  to  liav.-  mor.'  and  nmiv 
important  conseiiuenee-  :i-^  titne  goes  on. 

§0.    The  birth   rate  in  all  civilized  countri.'s  ha-^  shown  a 
decline  since  the  mi.idle  of  the  niiu'teentli  century.     Tim-  m 

„  .  .        .  .,-  ,1  _       ..     1        ■     ,        .1...       .1 1..       (■■•■.Ml        lS."ll>      tl> 

LnKiaUii   ll    V\i>^  .m  JH  r   tiiiUJ  ai;-.:    !.:    •<■■■■• 

mw ,   in  lt)(M)  l".>(),"i  it  w«H  about  27  per  tlionsmd.     In  I'ranco 


i 


jr«^r--|i.<mkda»i '  lAU  u. 


224 


THE  DISTRIBUTION  OF  WEALTH 


during  the  same  period  it  has  gone  down  from  26  per  thousand 
to  21.     In  Germany  the  decline  lias  been  less  striking,   but 
none  the  less  unmistakeable,  from  'M\  or  37  to  33  or  31.     There 
is  evidence  that  a  similar  changi>  went  on  in  the  United  State.s 
through  the  nineteenth  century.'     In  otluT  words,  there  has 
been  an  application  of  what  Malthus  called  the  prev<'ntive 
check.     But  the  change  has  taken  place  by  a  process  (Ufferent 
from  that  which  Malthus  recommended  and  expected.     Mal- 
thus desired  that  the  time  of  marriage  should  be  postponed  and 
that  marriages  should  take  plac(!  at  a  lat(>r  age.     Were  this 
done,  the  marriage  rate  would  decline;   and  the  birth  rate  then 
would  also  decline,  both  b(>cause  of  the  shorter  duration  of  the 
periotl  of  fertile  married  life,  and  because  of  the  less  fertility 
of  the   later  age   periods.     In   fact,   lio\v(>ver,  the  fall   in  the 
l)irth  rate  luis  come  al)out  with  a  nvrriage  rate  nearly  stationary. 
The  fall  in  the  l)irth  rate  has  been  iii  the  main  the  consequence, 
not  of  a  snuUler  proportion  of  marriuiics  to  the  total  popula- 
tion, but  of  a  smaller  number  of  children  per  marriage.     The 
marriage  rate  in  most  countries,  though  it  shows  a  slight  tendency 
to  (lecline,  has  varied  little     It  is  usually  not   far  from  8  per 
lOOO.     It  is  very  nearly  the  same  in  France,  in  (ierinany,  and 
in  Englanil ;  yet  these  countries  have  very  dilTcrent  birth  rates. 
The  number  of  children  per  marriage,  varying  though  it  does 
from  country  to  country,  tends  to  be  smaller  in  almost  all  coun- 
tries ;    unless  indeed,  as  in  France,  it  has  reached  a  minimum 
where   it    just    l)alances   the  nmnber  of  deaths.     There   is  no 
question  that  this  general  situation       marriage  rates  virtually 
stationary  and  yet  declining  birth  rates        is  due  to  delilierato 
abstention   from   propagation.      Married    couples    have  fewer 
childnn  than  before,  by   deliiterate   intent.     The  tendency  is 

1  liuiir.  -  uii  lliis  siil.j.  (  I  run  (>«•  fi.MU.l  ill  Miiy  Ktuti-tiriil  cnm|Miii|iiim.  For  H 
ciinfiil  .li-  ii.-um  mihI  n.'l,Tt,-.|  liuurir.,  ■..■,■  Miivr  «  St.,tiRl<k  ic  /  <l,,rlhrl«in.-.l,hr,. 
v.. I  Ml.  |>|'-  "  «  "»:  '""'  '"'  •'"'  ''"il'''  >*ti''i'"  ^^  ''  Willi-'ix-.  piipcr  in  tlir 
i;thli.J„m>  Amrnr:,>,  Sl,it,«lici,l  .1««..,  ,../„in.  IIMI.  N<>.  1'.  I'mf.'ii^or  Willr.ix 
liMx  liriiiinht  nut  til.'  Mir|.ii-iriK  fint  llmt  tli.<  .lo  line  in  llw  liiit.'.!  •^"'^••|' 
tlHt  nil'  t"'<''i  "•'  ri'Ci  nt  •iiii'iM,  liiit  ill-  I,  ii'  "li  r,.;,ti!i;i.i;i.;!,v  -v,;rr  iHS.Hr.  :-t-t- 
•Iw)  twii  lulniiniMi'  imii.is.  nni'  liy  \\rf<-rf.  ^^•^v^.lM)llnl•  iiul  Strvi'nwm.  the  nther 
by  Ml.  Villi',  ill  IIk'  ■'  'liiniii  /i.ij/cW  Slalisliinl  Sonify,  1""  ',  pp.   M.  ««- 


mm 


mmm 


VHP 


POPULATION  AXD  THE  SUPPLY  OF  LABOR     225 

more  markod  in  some  countries  than  in  others ;  more  marked, 
for  example,  in  Protestant  countries  than  in  Catholic.  It  ap- 
pears among  the  well-to-do  more  unmistakcahly  than  among 
the  poor,  yet  it  is  spreadinj?  to  all  classes.  It  raises  some 
large  (iiieslioiis,  both  as  regards  the  general  problems  of  popu- 
lation ami  as  regards  those  of  social  stratification.  To  these 
questions  we  sliall  turn  in  the  next  chapter. 


vol,.  II 


I 


i. 


I 


(.^ 


CHAPTER  53 

Population',  continued 

§  1.  Between  the  several  social  classes  or  non-competing 
Rroups  there  are  variations  in  birth  rates  and  death  rates  no 
less  marked  than  the  variations  between  different  countries. 
Such  diffennices  within  any  one  country  are  even  more  signifi- 
cant than  the  (liff(>rences  betwe(>n  countries,  for  they  bring  into 
fuller  light  tlie  nature  of  social  stratification  and  the  connection 
l)etween  standards  of  living  and  ruling  rates  of  income.  The 
statistical  evidence  on  this  part  of  the  sul)ject  is  comparatively 
meager;  on  the  other  hand,  the  ol)servation  of  everyday  life 
g.ie>  far  to  make  plain  the  general  situation. 

First,  consider  the  nature  of  the  statistical  evidence.  Mar- 
riage takes  place  later  among  the  well-to-do  cla.sses  than  the 
workingmen.  The  average  age  at  marriage  of  bachelors  and 
spinsters  (i.e.  for  first  marriages)  was  found  to  be  in  Great 
liritain,  in  189():'  — 


n\0HELORS    I     SplNBTI-.n* 


Miners 

Art  isiiiis 

SlKlllkl'C'pCIM 

Prii|'cssii)ii:il  mimI  iiiilcpcnili'iit  classon 


24 

2(vn 
:u.2 


22.4 

2;{.7 

24.2 
2rt.4 


Aiiotlur  iiidii'Mtion  of  the  same  situation  is  found  in  the  fact 
tiiat,  in  (inal  Hritiiiii  at  the  same  date,  out  of  ev(>ry  lOOO 
miners  who  in:irrii'(l.  701  were  under  25  years  c^  age,  whiio 
out  of  every  1(M)(»  persons  of  th(>  profe.ssi(mal  and  independent 
classes  only  l.">l  were  under  25. 

>  Till-  (ift.'ii-rili'il  fitiiin-.  nf  ()ix\>-.  ill  .[•iiiiHiil  ll»ii<il  ,'<l,ili»li4iU  Society,  1890, 
pp.  JT I  .'7.".. 

22(» 


nwHP 


RRipqppnpi 


I 


POPULATION  227 

The  later  age  of  mr.rriage  in  itself  tends  to  bring  a  smaller 
birth  rate  among  the  well-to-do.  But  the  birth  rate  is  smaller 
to  a  degree  far  beyond  what  is  explained  by  this  circumstance 
alone.  The  discrepancies  between  the  social  classes  are  strik- 
ing. In  Berlin  a  recent  elalwrate  examination  has  shown  that 
the  married  women  in  the  poorest  quarters  had  nearly  twice 
as  many  births  as  those  in  the  richest,  and  that  the  inverse 
relation  between  birth  rate  and  prosperity  held  throughout  the 
scale.  For  every  1000  married  women  of  child-bearing  age 
(15-4.5)  there  were  in  IIKW :  — 

23G  births  in  tho  poorest  quarters 
212  births  iu  tho  next  poorest  quarters 
191  birth?  in  tho  next  poorest  quarters 
]S()  'iirtlis  in  tho  next  poontst  quarters 
1.1  Mrths  in  tiie  next  poorest  (luarters 
127  births  in  the  riciiest  quarters 

It  is  not  often  that  direct  comparison  of  this  kind  (l)eiween 
the  number  of  married  women  and  of  births)  is  le;i.sib[e.  But 
it  has  been  freciucntiy  shown  that  the  •.Kimber  of  births  is  large 
for  the  poor,  small  for  the  rich,  in  comparison  with  the  total 
number  of  women  (marricel  and  unmarried)  of  chikl-boaring 
age.  This  result  appeared  for  all  the  (ierman  cities  from  tlii> 
investigation  just  referred  to;  thus,  to  t.ik.>  one  example,  in 
Hamburg  the  births  per  1000  women  of  child-bearing  age 
(15-45)  were  50  in  the  richest  (piurters,  151  in  the  poorest 
quarters.  An  older  and  much-(iu(»ted  set  of  ,inu.\'s  for  various 
European  cities  pive  the  numlier  of  births  (jxt  1000  women 
agiHl  15-50)  thus:  — 

I       I'Anm       '     Hi:iii.iN  Vm:nn\  I.iinihiw 

V( TV  tHjor  quarters '       lOS  i  1.*.7  20»)  I  17 

Poor   !'.^  '•-••••  l'>'  ,       "■' 

ComforUbli. I        "'-'  i  111  l.V.  ln, 

Very  o..mfortal)ie <>■'•  '•»"'  l'>'i  1";. 

Hicii I        '>^i  i  ^'-5  i"7  ''■'" 

Very  rich iJ*  '  '^  71  M 


HI 


M 


1 


228 


THE  DISTRIBUTION  OF  WEALTH 


k? 


In  Boston  the  average  birth  rate  for  the  whole  city  was,  in 
1900-1904,  27  (per  1000  inhabitants) ;  in  the  wanl  inliabitcd 
chiefly  by  the  rich  it  was  only  13  pei  1000 ;  in  wards  of  the 
poor  it  was  from  28  to  36  per  1000.  In  the  ward  where  the 
newly  arrived  Italians  cluster,  it  was  4G.' 

It  is  part  of  the  same  phenomenon  that  in  the  United  States 
the  birth  rate  is  much  lower  amonfj;  the  native  born  than  among 
the  foreign  born.  The  native  born  are  on  th(>  whole  those  of 
larger  incomes  and  better  social  station.  In  Michigan,  for  a 
period  of  2.-)  years,  from  1870  to  1895.  the  number  of  children 
per  1000  women  between  the  ag(>s  of  15  and  45  was  fv)r  the 
native-born  women  about  120  (ranging  from  111  to  127)  and 
for  the  foreign-born  women  about  230  (ranging  from  221  to  235). 
Similar  figun's  as  to  varying  death  rate  are  not  easy  to  get ; 
but  they  are  not  needed  to  show  the  salient  facts.  The  higher 
death  rate  among  the  poor,  esp(>cially  for  infants  and  cliiMren, 
is  too  sadly  familiar.  Every  poor  quarter  swarms  with  children, 
and  in  every  poor  quarter  the  chance  of  survival  to  maturity 
is  lt>ss  than  in  a  well-to-do  quarter.' 

Th»>se  variatioi\s  are  the  evidenc(>s  and  the  consequences  of 
diiTerences  in  the  stanilard  of  living ;  and  they  bear  the  same 
relation  to  the  standards  of  living  among  social  groups  as  the 
similar  variations  do  to  the  standards  of  living  in  different 
countries.  The  reas(m  for  low  remuneration  in  any  given 
group  is  that  tlie  nimibers  in  tliat  group  are  large  ri'latively  to 
the  demand  for  the  services  yielded;    in  otiier  words,  because 

iTlii'  (iiMins  M^  ti)  M.'ilin  iumI  llamUurK  ;iP'  fn.m  MninliTt,  Sr:„li,;i  :iir 
Hn;Vhrw„i.>.,<r,.,„„„  i,  Druhrhhwl.  pp.  1  ll'.  l-MV  An  ,-:rr\\,-ui  M.rvry  of 
all  th,' .■vi.!ri„r  uii  tliis  Mil.j.cl  for  vnriniM  .■...iiiliics  is  triv  n  in  M.imiIhtI  s 
l,.„,k  The  fmtirrH  f,.r  I'Mri-<.  Unliii,  .I-.,  un-  ll.Tlillon'-.  in  lli.-  Hi<ll.t,„  <t. 
VhisUlut  l„ln„„l.  <!,'  Sl„h,l,<w>:  Vol.  XI,  IV.M  -•,  p.  I'-'  1  :  <''  -  ^i-  '"  ■'"■^'""  '>■'"" 
U  ,.lfc,  '/•/„  /,.../.;.'/,;  II, ■Hs,  I'n>;irm  n,  r.u«l..u,  p.  IJS.  I'i  ru.^  ^  .n.h  mh  llprtillon  - 
cxML'L'crMl''  ll'c  .lilTi'nii.'iS,  lid'an-c  ri.'li  i\wm\'  r-i  conf  ,iin  ni:in,\  Hiiii:irri<Ml  Wdni.n 
siTvarit!*,  wli(  •»•  priHcnr,.  I.rini'^  .l(.wn  the  larlli  lal"  in  .nnipiii.-oii  witli  llic  t..t:,l 
IiUinliiT  iif  wiini'ii  iif  rliilil  I'larinn  :\\i}\ 

tn..-  fnllowiiiK  tiKUirs  aff  fur  I Ion  in    lOOH.     Tlnv  «iv.'  flir^Mrlh  an.l 

ilcalli  ratrs  iiy  (jri)np'<  "f  ■'"■  p'ip>'iaii 1    i,..n.l,iii,  f.r.M;p  1  .rin;;  tn-j 

(Inmp  fl  tlw  riclirxt  (the  «.  st  nf  ri.ti.r.  and  p.ivirly  IninK  in  tliiN  .asc  lli<'  pro- 
portinn  of  H.rvants  k.'pt).  Hod.  .rn.l.  ;u,  I  ,  on,r|.  I  ral.H  ar..  Kiv-n  (or  l.irlliH 
Hn<l  for  .l.'atli.s,   tlir  cnulrral.^  I"intf  p.  r  ItHHl  of  i nlalion,  ai.a  (!»■  rorrcctrd 


^^mw" 


wmmmmmmm 


POPULATION 


229 


the  marginal  utility  or  efficiency  of  the  group's  members  is 
low.'  But  the  numbers  in  any  group  remain  largo  or  small 
according  to  multiplication  within  the  group.  Xot  solely,  it  is 
true,  according  to  this  factor ;  there  is  transfer  from  group  to 
group,  and  especially  some  swelling  of  the  numl)ers  in  the 
highf  r  ranks  through  inflow  from  the  lower.  Yet  in  the  main 
e;ich  group  is  recruited  from  its  own  members,  ("ertaiiily  in  the 
lowest  of  all,  that  of  unskilUul  Li'dohts,  growth  proceeds  almost 
wholly  from  within.  The  wages  of  day  la!)()rers  are  low  l)e- 
cause  there  are  so  many  of  them  ;  and  there  are  so  many  of  them 
liecause,  notwithstanding  low  wages,  they  continue  to  marry 
and  multiply,  and,  as  a  rule,  marry  early  and  nmltiply  fast. 

Here,  again,  the  relation  l)etweeii  standard  of  living  and 
wages  is  not  direct,  but  indirect.  The  mere  fact  tliat  the  well- 
to-do  are  habituated  to  comfortal)le  liviuy;,  aii'l  wish  to  main- 
tain comfortable  living,  dcu's  not  makr  .  aniings  large.  Hut  the 
fact  that  there  are  comparatively  lew  i)hysicians,  lawyers, 
architects,  engine(Ts,  business  luin  of  tlie  upper  tier,-  this 
serves  to  keep  high  the  incomes  of  the  class.  Tlie  wages  of 
conunon  laborers  are  iiol  low  because  they  are  used  to  coarse 
food  ami  eluH-rless  living;  it  is  tlse  maiiili'iiauce  of  their  num- 
bers in  face  of  these  meager  conditions  that  keeps  wages  low. 
There  is  a  correlation  between  standard  of  living,  birtli  rates, 
sup[)ly  of  workers,  and,  finally,  «'arniiigs. 

r;itcs  tiiliiiiK  ;i<'<M(uiit  nf  V!iri:itiniis  in  intiritul  coMilitinns  ;inil  of  the  (listrilnitiiiii 
of   tllr   |n>|>lll:itiull   liy   .U!!'   crnuiH. 


11 


1 
1 

f 

1 

j 

<'iMiii: 

( 'mill 

1 

;      1     OHHl.iM   n 

f ' 

mill  (  rr.ii 

i" 

mil  l<  tri: 

1)1 

Mil    H 

Ml. 

.>ll(lll   lt\ll. 

1  h 

Mil    l(  Ml 

1 

-1 

( irimi 
( 'iiiiiii 

(  illilll 

<  iniui 
( iroiii 
( Iniiii 

1  (pdtiri'Mt)     .  . 

■      i 

:ts.:i 

.'li.ii 

j:.  1 

is..' 

1 

isl 

111 
lit'. 

UM 

11. H 

i:i.(i 

i 

.11.(1 

■J.I..1 

11    ^^:l 

I'.l    1 

l.-ld 

:i 

1.-.    t 

1 

.'»  .  .       

(I    iliplTNt)          -    , 

l.'T 
1.^.-. 
1  1  11 

'_- 

—  - 



•■  — 

Si'.'  till'  i>ii|HT  liv  \<'wsli..liii.'  iiii'l  Sti'vcii.xoii.  iilrciMl.v   P'-'ir.a  ei,  in  .fn„r>i'i' 
Hoiidl  Sh,lisli,"l  Sn.i.li/.  \'M»<,  |i,  71, 
'  Srr   iil„,vr.    (   hiipM     17,    55    1,    -'. 


I 


It 


230 


THE  DISTRIBUTION  OF  WEALTH 


It  is  possible  to  conceive  of  the  standard  of  living  as  not 
only  influencing  wages  through  the  ultimate  effect  on  numbers, 
but  as  fixing  wages  at  a  precise  point,  —  as  having  a  deter- 
minative influence  .4niilar  to  that  which  cost  of  production  has 
upon  the  long-run  value  of  commodities.  Thus  a  given  group 
—  say  that  of  the  upper  set  of  manual  workmen,  the  mechanics 
and  skilled  craftsmen  —  may  be  supposed  to  have  a  specific 
standard  of  living,  to  multiply  fast  when  earnings  exceed  the 
amount  so  defined,  and  to  check  multiplication  when  earnings 
fall  below  it.  But  such  a  conception  of  the  situation  is  true 
to  the  facts  only  in  a  very  vague  and  uncertain  way.  Other 
circumstances  than  a  foreseen  and  calculated  rate  of  remunera- 
tion affect  marriages  and  births.  The  influence  of  the  purely 
economic  motives  is  irreguhir,  often  oidy  half-conscious.  They 
are  more  likely  to  serve  in  checking  multiplication  than  in 
increasing  multiplication ;  they  are  more  likely  to  keep  wages 
from  declining  than  to  prevent  them  from  rising.  When  a 
moderate  increase  of  wages  in  a  given  group  is  made  possible 
by  greater  demand  for  its  services,  it  is  not  to  be  thought 
probal)le  that  higher  birth  rate  and  internal  growth  will  check 
the  advance.  It  is  much  more  likely  to  be  kept  within  limits 
by  seepage  from  without,  — by  the  success  of  some  individuals 
from  other  groups  in  finding  their  way  into  the  more  prosperous 
employment.  Not  only  for  the  population  at  large,  but  also 
for  the  several  classes  within  it,  it  is  safer  to  say  that  a  high 
standard  is  a  condition  of  the  maintenance  of  iiigh  earnings 
than  that  it  is  a  cause. 

§  2.  The  general  decline  of  the  birtii  rate  in  a<lvancing 
countries:  tl\e  accentuation  of  that  decline  among  the  well-to- 
do;  the  probability,  almost  certainty,  that  with  wider  diffusion 
of  prosperity  the  tendency  will  spread  more  and  more  to  all 
classes,  —  all  this  is  due  to  social  and  iiidustrinl  ambition. 
Some  writers  have  discussed  the  change  as  if  it  were  automatic, 
as  if  iiic  iowri  liiitii  late  iiliiuiig  the  Wtll-io-do  wrre  tlic  natural 
and  necess.'iry  conscjiueiice  of  their  having  u  larger  income. 
The  eomiection  between  income  and  birth  rate  is  the  other 


I 


mmm 


mm 


«p 


POPULATION 


231 


f 


way ;    rising  prosperity  is  rather  the  effect  than  the  cause  of 
declining  pressure.     The  fundamental  cause  is  the  wish  of  each 
family  to  promote  its  own  material  welfare.     Malthus  spoko 
of  the  desire  of  each  individual  to  improve  his  condition  as  the 
vis   mcdicatrix   of   society.     Certainly   with    reference   to   the 
growth  of  population,  he  spoke  with  truth.     When  some  chance 
of  better  conditions  is  visible ;   when  a  better-paid  occupation, 
education,  some  savings  and  some  accumulation  appear  within 
reach ;  when  it  is  seen  that  more  mouths  to  feed  mean  a  lessen- 
ing possibility  of  utiUzin^;  such  an  opportunity,  —  then  the  pro- 
pensity  to   multiplication   is   more   antl   more   held   in   check. 
The  causes  of  the  declining  birth  rate  are  to  be  found  in  the 
intellectual   and  material   forces  which   have   so  wonderfully 
stirred  the  people  of  western  Europe  during  tlu;  last  century : 
the  spread  of  education,  newspapers  and  Iwoks ;   cheap  move- 
ment by  railway  and  steamship  ;  the  stirring  of  stagnant  popu- 
lations  by   the   new   modes   of    employment,    by    large-scale 
production  and  the  factory  system,  by  the  changes  through 
emigration.     Not  all  of  these  forces  have  been  steadily  at  work 
in  the  same  direction.    The  factory  system  has  seeminl  at  times 
simply  demoralizing,  though  in  the  long  run  it  also  has  had  an 
awakening  and  uplifting  effect.     Where  the  ownership  of  land 
has  been  widespread,  or  the  conditions  of  tenure  secure,  the 
agricultural  population  has  responded  most  surely  to  the  new 
opportunities,  as  in  France,  the  United  States,  western   Ger- 
many.    Where    the   agricultural   workers    are   divorctnl    from 
the   land,  as  in   eastern    Germany,  England,  southern    Italy, 
Austria  and  Hungary,  they  have  needed  a  stirring  from  the 
other  world,  throiiiih  emigralion,  to   rouse  them  to  the  out- 
look  for   improvem(>nt.      Throughout,   it   has   boon   awakened 
ambition   in  the  individual  that  has  causeil  the  standard  nf 
living  to  rise. 

Malthus  was  induced  to  write  on  tlie  question  of  population 
bcrausc  ho  hriiovrd  that  here  wa^;  an  insuperable  nhst;ic!e  to 
Utopian  schemes.  His  followers  steadily  maintained  that  tlic 
tendency  of  population  to  outrun  subsistence  was  ua  obstacle 


lil 


l1 


'  t 


232 


Tlli.   xJiSTEIBLTIU.V    Oi    WLA^TII 


! 


i  I 


M 


i 


in  the  way  of  sorialii^m.  Th(>  ul).--  .t'ic  may  not  be  insuperable ; 
l)ut  it  is  certain  that  in  a  socialistic  society  it  will  have  to  be 
overcome  in  a  w^iv  very  different  trom  that  which  ha>  in  fact 
appeared  in  niotiern  coinniunitie.s.  On  the  one  hand,  inequality 
and  the  familiar  spectacle  of  a  higlier  economic  and  soc'a! 
stratum;  the  stimulus  of  self-interest,  on  the  other  hand,  for 
one's  self  and  one's  children,  —  these  are  the  factors  which 
have  limited  the  movement  of  population,  spurred  ambition 
and  im[)osed  restraint,  and  so  sustained  tlie  advancement  and 
dilfusion  of  material  well-being.  Individualism  is  at  the  root 
of  the  phenomenon. 

All  these  individualistic  forces  have  been  most  strongly  at 
w(jrk  in  the  L'nited  States.  Nowhere  has  there  been  more 
freedom  of  opportunity,  more  spur  to  individual  ambition, 
more  stirring  from  education  and  from  the  consciousness  of 
larger  possibilities.  Hence  it  has  happened  that,  in  those  parts 
of  the  country  and  in  those  social  strata  where  the  pressure  of  ad- 
vancing poi)ulat  ion  portended  danger,  pressure  has  begun  to  relax. 

In  New  England,  for  example,  the  native-born  population  has 
long  been  multiplying  at  a  very  slow  rate.  The  gross  increase 
in  the  population  of  New  Englam"  has  indeed  continued  to  be 
considerable:  but  the  increase  has  come  by  the  steady  inflow 
of  innnigrants  and  by  the  large  birth  rate  of  foreign-born  parents. 
The  striking  difference  between  the  fecundity  of  native  women 
and  foreign-born  women  has  already  been  noticed  with  refer- 
ence to  Micliigan.  In  Massachusetts  it  is  even  more  striking ; 
the  birth  rate  among  the  foreign  born  is  three  times  that  among 
the  native  born,  as  the  following  figures  show  : '  — 
Anmal  Biutu   Ratk.s 


-  —  -  -        -  -    -   ' 

18H3-18H'> 

1888-1803 

17.1 
4<).() 

, 

I8n:i-'8n7 

Xativo  parents 

17.1 

48.1 

17.0 

Fori'i^ii-l)t)rii  |)art'iits 

j2.1 

'  I!.  I{.  Kuizviiski.  ill  (.  •rtrrl,/  Jonnml  of  E,;iniiii,i.-x.  Vdl.  \VI,  pp.  14;» 
I  P'l,  is:t.  <'p.  Millie  (c|iiiiU\  stiil<iiiR  fisrurrs  jrivcn  liv  A.  .\.  Vr.iinii  for  Now 
lliuiipsliiri'  ill  I'ul'Ucatiom  Aiiuricnn  .S/ /.'(\,'m  ;/  As.ioci'iliuii.  Si-ptimlxT.  P.)0.'>. 


'S 


POPULATION 


1^33 


J. 
'4 


These  figures  are  for  the  crude  birth  rate  Cbirths  per  1000  of 
popu"j,tion)  and  exaggerate  the  difference  in  the  fecundity  of 
the  two  classes ;  for  among  the  foreign  born  the  proportion 
of  persons  in  the  age  of  reprotluetion  is  greater.  But  even 
comparing  the  births  in  proportion  to  women  of  child-l)earing 
age,  the  rate  of  increase  among  the  foreign  born  is  twice  tliat 
among  the  native,  the  figures  Ix'ing:  — 

Birth  Ratf.s  peii  1(X)0  Womln  A<ii,i)   11-4!) 


j  1883-1887     l888-18f)'J     180:1-1897 

Native  mothers j        (i:!.?  i.S  (')2.*> 

ForeiKii-l'oni  mot  hers |      !_'l..")  l-',-',.i'>  V,i[)A 

The  careful  statistician  from  whom  th('s(>  figures  are  quoted 
concluded  (in  1901)  that  the  native-born  populatioti  of  Massa- 
chusetts was  not  maintaining  itself;  if  the  birth  rate  which 
prevailed  during  1883-1897  were  to  continue  indefinitely,  this 
population  would  become  extinct.  Doubtless  it  will  not  con- 
tinue indefinitely  ;  a  readjustment  to  conditions  of  stable  num- 
bers, probably  of  numbers  increasing  somewhat,  will  come; 
but  a  low  birth  rate  will  almost  surely  maintain  itselt  per- 
manently. 

In  the  native-born  farming  population  of  the  c  ntral  region 
of  the  country,  the  same  relaxaticm  of  the  rate  of  growth  Is 
showing  itself,  though  nc  t  so  strikingly  as  in  New  England. 
There,  too,  the  average  number  of  children  per  marriage  tends 
to  decline,  because  parents  are  -^olieitoiis  not  only  to  maintain, 
but  to  raise,  the  social  ai.il  ecuiKiniic  jxisition  of  their  ehildicn. 

This  movement  is  steadily  extemiing,  and  is  gradutdly  atfeet- 
ing  not  only  those  who  are  u-^ually  thought  of  as  being  in  a 
more  special  sense  "native  born."  liut  the  desceiulanis  of  the 
immigrants  as  well.     The  influence  of  free  institutions  and  nt 

froe  fipoortitUitic'i  i--   U^   If"-;-:!'!),    p( IKS! !'.!•.'   to   de-triiv,    t!!!'   !':l--te- 

like  character  of  social  classes.     They  lift  the  second  geriera*''n 
of  those  will!   in\migrate   intu   the   I'nited   States  ot't   of   ilie 


W 


i 


n  I 


! 


234  THE  DISTRIBUTION   OF  WEALTH 

lowest  of  the  non-oompotinK  Rroups.     In  that  second  genera- 
tit.u  the  birth  rate,  which  had  been  iiigh  among  the  first  arrivals, 
begins  to  full.     In  the  United  States  the  rate  of  pay  for  com- 
mon labon-rs  and  unskille,!  factory  worlu-rs  i.s  kept  U.v,  not  by 
a  conthuung  high  birth  rate  within  the  country,  but  by  a  high 
birth  rate  and  low  standard  of  living  in  the  f..reign  sources  of 
Kupplv      It  is  in  K.nopean  countries  that  the  millions  are  born 
^vho   >teadilv    •.ei.lenish   the   lowest    stratum.     Once   they   are 
settled  here,  th.-  leaven  of  social  and  (ronomic  ambition  slowly 
but  surely  aff.-cts  them.     It  makes  well-nigh  certain  a  relaxa- 
tion ..f  the  rat.'  of  growth  in  iH.pulation.     As,  in  the  course 
of  time    natural  resources  come  to  be  more  completely  pre- 
empted'and  the  p<,ssibility  of  incn.as..  is  subjected  to  the  con- 
ditions of  an  uldcr  c.untry,  the  Malthusian  diniculty,  there 
ran  be  litth-  .loubt,  will  be  staved  off  by  the  increasing  applica- 
tion of  the  preventive  check.  . 

§  •<    Th.-  .,uesti,.n  which  tunv  fa.-es  the  mlvanc.nl  .-ountrus, 
and  eMHX'ially  th..  uum-  prosperous  .-lass.      u  th..se  .-ountries, 
i<  wlu'thcr  th.'  pr.-v.-nttv.'  .h.'ck  is  not  lik.  ly  t..  be  carried  too 
far     The  population  ..f  I'ran.'..  as  a  whoU-  bar.-ly  i.    mtai.w 
itself;  it  is  probabl..  that  the  Kr.-nch  w.-ll-to-.l..  fail  to  maintain 
them«'lv..s  at  ail.     Th.'  nativ.'-b..rn  p..pulati.m  .^f   Massa.-hu- 
..■tts  probablv  fi.il-^  to  maintain  its.'lf:    it   is  well-nigh  certain 
that  this  is  the  <ase  among  th.-  well-t.Ml..  in  that  state.     The 
ra.K.-  of  the  ph.Mioiu."ii..n  ar.-  an  .-x.ess  of  social  ambiti.m,— 
fon-thuught   to  th..  p..int  ,.f  timidity.     Pcopl'-'^  •»«»<'""»  •''^  <''' 
what  is  a  pr..p.r  mod.,  of  living  >lcndily  b.rom..  tuoiv  exacting, 
,„„1  ,|„.  ..xpruM.  .,f  maintaining  a  fnmiiy  on  th..  conv..nti.)n«l 
H,.,,!..  b.M.o,n..<  ,.,...,.(.  r.     .MarriM..r:'.  tak.-  pla.'..  at   a  ."..mpara- 
liv.'ly  hit..  !.»■<•.  imd  th.'  pn.portioM  of  tho<..  who  .h.  not  nniriy 
„l   nil  is  .•..usid.-rabU..     W  h.'r..  th.r..  is  acc.imulate.1  pr.)i>..|ty, 
Inrge  fMmili..s  an.  avui.h..!  U-\  ll,..  inl-.Titan.'..  be  split  up  am.uur 
too  manv.     Th.'  v.ry  ri.  1,  -^vnu  to  i.mllii.Iv  I'.ast  rai.i.lly  of  all. 
Thi^    t..i..l..n.y    brln}r^   .'viN,     It    tak.'s   awr.y    part    of    the 
^i:,.,,.!,.,  ..J.;..}.  ..•o!!!!"'  froti!  .ompetitioii  ami  pre^-siir..,     ( "hil- 
dren  who  aiv  t.M.  .aivfuIlN  r.  nnd,  t.M,  .-laborately  ...IucM.hI,  I.mi 


POPULATION 


235 


fully  assuretl  of  support  from  inhorit«l  means,  lack  courage. 
It  wouKi  seem,  also,  tliat  tlu;  children  of  parents  who  have  led 
a  nervously  exhausting  life,  especially  if  the  parents  have 
marrie<l  late,  lack  vigor.  A  i)oj)ulation  which  marries  earlier 
and  multii)liea  more  rapidly,  and  whosi'  newly  accruing  mem- 
bers are  thrown  more  upon  their  own  resources,  is  likely  to  he 
more  progressive. 

Further,  the  more  prosperous  strata  among  the  population 
are  those  in  which  intellectual  gifts  are  mo.st  likely  to  ap|)ear. 
They  are  prosperous  in  the  main  liecause  they  have  such  gifts. 
No  doubt  there  are  plenty  of  coiiunonplacc  persons  in  the 
favored  classes  among  whom  nniltij)licati(»n  is  so  markedly 
restricted.  Hut  the  able  and  the  intelligent  are  also  i)repoiuler- 
antly  among  them.  Hence  in  this  tendency  among  the  well- 
to-<lo  there  is  a  danger  that  the  (juality  of  the  popiilati()n  will 
deteriorate.  Less  of  the  gifted  are  iM»rn,  ami  those  who  are 
l)orn  are  less  stinuilated  by  active  competition  to  exercise  their 
gifts  to  the  utmost.  The  lower  strata  ol  the  population,  on  the 
other  hand,  nuiltiply  mo.st  rapidly.  Though  ,-ome  individuals 
of  high  (]ualities  emerge  from  among  them,  the  v!;reat  ma.ss  are 
mediocre,  and  perjM'tuate  mediocrity.  Tho^^e  lew  whose  mi- 
usual  abilities  eiuible  them  to  rise,  .succuml>  to  the  social  am- 
bitions and  inhil>itions  which  prevail  in  the  |)rosperous  class, 
and,  like  their  new  as.soeiates,  fail  to  propagate  freely. 

More  and  more  thought  has  be(>n  given  of  late  years  to  tho 
Htrangi<  contrast  between  our  care  in  breeding  animal.^  and  our 
carelessness  in  breeding  ;  len.  The  human  rac"  couiti  be  im- 
mensely improved  in  ({uality,  and  its  capacity  for  happy  living 
immensely  increased,  if  th(».>*e  of  iMior  physical  and  mental 
endowment  were  prevented  Irom  mull ipl\ inn.  Hut  it  i'^  very 
imcertaiii  how  far  it  will  prove  pos-ible  to  select  for  propaua- 
tion,  Though  the  great  broiid  fact  of  heredity  is  uiunistakeable, 
the  details  of  the  laws  of  inheritance  are  but  dimlv  known  to 
us,  alHive  all  in  their  application  to  man.  More  liuht  will  come 
in  time  from  what  is  called  eugenics;   that  i:*,  from  systennitic 


236  THE  DISTRIBUTION   OF  WEALTH 

from  generation  to  generation,  with  a  view  to  the  possibilitieB 
of  .el'ticn  and  breeding.  In  tiu>  p.-sont  state  o  know  edge 
no  incUviduul  differentiation  is  feasiM.> ;  least  of  all  do  vo 
now  wh.t  are  the  comUtions  whieh  lead  to  the  Imth  of  uuh- 
vidu.ls  having  extraordinary  gifts.  And  even  ff  nu)re  aeni- 
::ttl>d;  eon.es  to  ..attained,  any  sy.en.  or. ^^^^^^^^^^ 

an.l  soUrtion  would  probably  be  uu-ons.stent  with  that  stri^ 
in^  f<,r  fr..ed<un  of  opportunity  and  for  in.livulual  developn.nt 
.,Hic.h  is  the  essonee  of  the  aspiration  for  pr<,gres.s.  It  ,.s  d  I h- 
..,.,  „  ,„,,.,v.  any  sueh  systen.  whi.^.  wou  I  ..ot  unply  h 
saerifiee  of  ,.res.nt  happiue.s  by  eountle.s.s  uuUv.duals,  for  the 
..ke  of  a  eold  and  distant  i.leal  of  ulti.nate  rae.al  nnprovement. 
('jnly  some  very  lin.ited  appli<-atious  of  the  prineiple,  n.  extren.o 
:;i.   ...n.   nL   within   the   l.<>unds  of   possibihty      (ertanv 

,;,„.  of  erinnnals   and  paup-rs   bn^ed   only   th.-u-   k.nd.   and 
so;.i,.,v  has  a  ri.ht  an.l  a  .luty  to  prot.rt  its  nu-mlu-rs  fnnn    ho 
repeated  burd.  n  of  n.aintaiuing  and  gu.wding  sueh  paras. tes 
Son.e  so,-ts  of  disease  and  tai..t  a.-e  iiiheriud,  an<l  .t  .s  nu-re.ful 
alike  to  wo..ld-be  pare,.ts  and  pos>ible  olTsprh.g  to  put  a  eheek 
„„  U.eir  trans...issio...     Hey.md   this,  the.-e   is  "Hl-I-'^.-^. 
nn.ler  anv  soeial  system  wl.i.h  we  .-a..  eo,.ee.ve,  that  n.ank.t.d 
will  .hUbVrately  seleet  a  ,.ort.o..  among  its  n.en.bers  a«  alotio 
priv.leged  to  perpetuate  the  raee. 

'  Too  »....•!.  stress  sho..hl  not  l>e  laid  o..  what  .s  ealle.l  "raee 
suieide  ••  The  ext.-.it  of  the  drift  toward  restrai..t  among  the 
welltoMlo  is  ..ften  exaggerated.  Though  prudenee  n,.ght 
no.siblv  be  ear.ied  to  the  point  ..f  in.pending  am.ihih.t  .on  a.uong 
;,..  higher  strata,  it  will  probably  ..ot  be.     ''''!""' ;'';'' 'I''"";;'; 

,.„.l  brg<    fanuhes  h.  th.-se  elasses  are  ,nd 1  not  hkc-ly.     Mut 

„  n.ainte.nnee  of  their  n.nnbers  a...l  a  nu.derate  .nerease  mv 
l.vn..n..:u..in.probable.  Snn.ething  w.lhle,.eMd  on  the  .deals 
whirl,  inlluenee  their  lives.  KHvoU.Us  n.nbi.io...  the  love  of  vul- 
var displ.v.  the  exaggeration  ..f  artilieial  di.tin.tu.ns,  .dl  tend  to 
he>itntion  in  n.arriage  a,.d  thnorou^-....  in  begett.n.  offsprn.g^ 
.     ,  ,        I  •.     .  _  ,..,...  I.,  il...  i.iiriier  fnund.nK  ot 

ITuiher  itiriiN   .liiil    .iiui'i' '!:■■      .t  .1  ! 

fumilies  and  b'  less  limit..!  f-.'un.litv. 


POPULATION 


237 


On  the  other  hand,  the  good  sides  of  restraint  on  multiplica- 
tion sliouid  not  be  forgotten.  For  niaiikiud  as  a  whole,  declin- 
ing birth  rates  and  Kss<Miing  pressuri'  on  population  mean 
progress,  not  deterioration.  The  jjri'valeuce  of  habits  of  pru- 
dence among  all  strata  means  a  gain  in  human  happiiii^ss. 
Possibly  the  time  will  come  when  this  sort  of  prudence  will  !)<> 
carried  so  far  that  poi>ulati(»n  in  the  advanced  conununitie? 
will  no  longer  increase  at  all.  Then  a  low  birth  rate  will  bo 
balanced  by  a  low  death  rale,  av(.idal)lt'  suftrring  and  disease 
will  be  reduced  to  the  minimum,  the  averajje  duration  of  life 
will  be  longer.  Progress,  then,  will  perhaps  be  less;  or  at  least 
it  will  Ik'  in  a  different  direction,  with  dilTcrent  conscciuences, 
and  under  different  impulses.  There  is  no  reason  why  the  arts 
of  protiuetion  sliould  not  continue  to  advance,  and  certainly 
no  reason  why  the  intellectual  and  m<iral  life  should  not  move 
upward.  The  struggle  and  competilion  of  rap'dly  increasin;^ 
numbers  are  not  essential  for  happiness,  nor  is  an  approach 
to  .stationary  j)opulation  in  itself  a  c.iiise  of  unliappiness.  In 
Buch  a  state  —  to  quote  the  eloquent  words  of  the  mo>t  wide- 
minded  of  the  earlier  economists,  John  ."^tu.irt  Mill  —  "there 
would  Im'  as  much  scope  as  ever  for  all  kinds  of  mental 
cultun*,  and  moral  and  st»cial  progress;  a-<  nmch  room  for 
improving  the  .Art  of  Living,  ami  much  more  likelihcKxl  of  \{a 
iH'ing  in»prove<l,  when  minds  ceased  to  be  enjjtrossed  by  tho 
art  of  getting  on.  .  .  .  Only  when,  in  addition  to  just  in- 
stitutions, the  inerei.  e  of  m  nkind  shall  l»i'  imder  the  delib- 
erate guidance  of  judicious  forcsinht,  can  thi"  conque>ts  made 
from  the  |v>wers  of  nature  by  the  intellect  and  energy  of 
Bcientific  disc<iveries,  be  made  the  conunon  properly  of  the 
Bpecies,  and  the  means  of  improving  and  elevatmg  (he  uiiiver- 
sal  lot."  « 

'  I'olitKal  tcmomu.  Uwk  IV,  Chuiitwr  VI,  |  i. 


/ 


P' 


CHAFFER  54 

Inequality  and  its  Causes 

§  1.  The  ovcrshatlowinR  fact  in  tho  distribution  of  property 
and  income  is  inequality.  How  great  is  the  inequality,  and 
what  are  its  causes? 

In  view  of  the  enormous  interest  of  this  topic,  the  meager- 
nesH  of  our  information  is  surprisinR.     Statistics  »)asod  on  in- 
come tax  returns  supply  data  that  may  U-  considered  accu- 
rate ;  but  they  exist  for  a  few  countries  only.     For  some  others 
we  have  {igures  which,  though  statistically  less  rigorous,  still  give 
significant  indications  tus  to  the  pro|H)rtions  of  the  rich,  tho 
well-to-do,  tho  poor.     But  for  most  countries,  including  the 
I'nited    States,    we    have    no    precise    information    whatever. 
Nevertheless,  familiar  observation,  supiM)rted  and  supplemented 
by  such  fiiiures  as  we  have,  suffices  not  only  to  assure  us  of  the 
fact  of  ine<iuality,  but  to  show  its  gen.'ral  range  and  character. 
We  know  that  the  number  of  the  rich  is  very  small ,    that 
the  number  of  iHTsons  who  arc  we!l-to-<lo  and  comfortable, 
though  considerably  larg(-r,  is  still  small :  and  that  the  persons 
with  slender  incomes  are  the  must  nuiniTous  of  all.     With  only 
one  exception  of  im|K)rtance,  to  be  not.'d  presently,  distribu- 
tion, both  of  wealth  and  income,  has  a  form  roughly  pyramidal. 
T«»  put  the  analogy  more  carefully,  its  f.irm  is  like  that  of  an 
inv<rted  peg  top,      the  lowest  range  small,  then  a  very  large 
extension,  and  thereafter-  steady  shrinkage  as  the  highest  point 
is  a|>proachfd. 

It  will  siiflice  to  give  n  few  tyjucfil  figtires.  The  Ix'st  tax 
statistics,  ..(  a  kind  to  show  the  (li>tiii)uti(«n  of  income  among 
the  individuals  of  a  largi-  onuitry,  are  those  of  Prussia.'     Tho 

'(•.m.imrf  whi.t   i«  w.i<l  l"l.-w,  it.  Hu„k  Mil,  <  Imptir  07.  of  u.c.nie  tu 

lllCtlllKl*. 

238 


INEQUALITY  AND  ITS  CAUSES 


239 


following  fiRxircs  arc  for  tlio  year  1908 ;  almost  any  other  recent 
year  would  show  the  same  results. 

Out  of  a  total  Prussian  population  of  38,000,000,  no  less 
than  18,000,000  (8,:5:}0,000  taxable  p(>rsons)  were  not  affected 
hy  the  income  tax,  because  the  income  of  the  several  taxable 
persons  was  supposed  to  be  less  than  the  exempt  amount,  — 
9(X)  marks.'  There  were  taxal)!f  and  assessed,  because  having 
an  income  exceeding  the  exempt  amoimt,  5,872,000  persons. 
Among  these,  incomes  were  distributed  as  follows  (in  round 
numbers) :  — 

Taxable  Peb«on» 


5.2S4,(HM),  or  '.M)  ih-t  cnt,  ha<l  innomos  of     000  (^      .3,000  marks 

411,(H)0    "     7      "  ;j,(KK)  (oi      «,.-K)0     " 

7G,(MK)    "     1.3 "  (v'>(M)  («)      {>.r>()0     " 

Ki:2(M)  "    i.t  "     "     "         "       o.rtoo  ('«   3n„-)(K)    " 

IS.CKM)     "     .2r>  "       "        "  "         3(>,."^H)  (•(    lOO.lHH)      " 

3.8(10    "     .(»5 "  ovur  1()(),U(K)     " 

if  the  line  between  those  who  are  weli-to-<io  and  those  who 
an*  not  be  drawn  at  3000  marks,  it  appears  that  roughly  no 
more  than  ten  jwr  cent  of  the  taxed  persons  belonged  to  the 
well-to-do  riasses. 

These  figures  take  account  only  of  the  persons  coming  within 
th<>  range  of  the  income  tax.  There  is  gucs-swork  concerning 
those  below  the  exempt  amount,  .\ssessnient  of  p<'rsons  whose 
income  is  near  tlie  hmit  is  bs'lieved  to  be  M-ry  inexact;  it  is 
supposed  that  one  half  of  the  persons  who  are  not  assessed  have 
yet  an  income  (e-  large  as  «t(K)  marks.  For  the  whole  popula- 
tion of  Prussia,  whether  reached  bv  income  tax  or  not,  the 
following  estimate  (for  the  year  18!»0)  has  been  made  by  high 
aulliority  :  — 

t,,'i<M),IMM)  fiuiiilii'-i  liiiM'  iiic(iiiii'<(  of  \HM)  iimrks  or  less,  nii  iiveraiff'  of  «iiy 

(mO  marks. 
'.',,'i()(),()0()  fiiiiiilic-.  liiis  !•  iiii-utri''H  iif  (MX)  (.(  .KKMI  murk'*,  iin  (iver;ii,'i'  >>(  r.ay 

I3.VI  iimrks. 
4(XI.(KK)fftiiiiIi(-i  !uu.'  iiicoiiirs  of  3(X)0  '•    iOO,(H)0  mark'*,  nn  iiv.tiii,'i<  of 

huy  KMHK)  MiiirK^. 

'A  frw  iilnntm  111'  1-  «  T  •  iiliivnl  (imti  lli^'  liu,  tlioiillh  iHiniii  "Miiiff  mi  r 
000  nmrkn  iiiPi>ni<',  f<ir  :<|'    i  il  rrtiKoim. 


I 


( 

i 


^5 

I 


240 


THE  DISTRIBUTION   OF  WEALTH 


Of  the  whole  number  of  families,  a  trifle  over  five  per  cent 
are  well-to-do,  having  incomes  over  3000  marks ;  the  distribu- 
tion among  these  being  sharply  pyramidal,  as  was  indicated  in 
the  first  set  of  figures.' 

The  British  income  tax  is  not  so  framed  as  to  give  direct 
information  regarding  the  incomes  of  the  individual  taxpayers  ; » 
but  it  gives  materials  from  which  an  estimate  can  be  made, 
sufficiently  accurate  for  the  present  purpose,  of  the  distribu- 
tion of  incomes  in  Great  Britain.  The  following  figures  are 
reached  (for  1904) :  — 

The  num».er  of  familios  having  iacomes  under  ^160  was  6.775.000 
Tho  numbe.r  of  incomes  between       £100  and        £700  830.000 

£700    "      £2,000    "       122,000 

••  £2,000    "      £5.000    "        32.400 

•<  £5.000    '•    £50.000    "         14.200 

over        £.)0,000 350 

The  result  may  be  stated  in  another  way :  in  a  population 
of  43,000,000,  al)out  5,0(K),000  Iwlong  to  families  having  an 
income  of  Um  a  year  or  more,  and  these  5,000,000  have 
eAmui  one  half  of  the  total  income  of  the  British  people ;  the 
ren-aining  38,000,0(K),  with  incomes  of  less  than  £160  per 
family,  have  tlie  other  half  of  the  total  income.  These  figures 
caniu")t  pretend  to  rigorous  accuracy.  Persons  who  are  dis- 
posed to  defend  and  justify  existing  inequalities  usually  reach 
estimates  showing  a  smaller  numl)er  of  very  great  incomes 
and  a  larger  number  of  middle-class  incomes.  The  details  of 
these  calculations  are  of  interest  and  importance  for  statis- 
ticians, but  are  of  little  c(.nse(|uence  for  the  purposes  of  a  broad 
survey.  Tiie  figures  licre  cited  give  a  sufficiently  truthful 
pictun-  of  tlie  ineciuahty  in  tli'  distribution  of  income  in  ad- 
vanced countries.^ 

1  Th.mr  arv  l'r..f..H«.r  S.lininll,«r«  rMimatos  (for  the  yoar  IKftO),  inhi.Orund- 
ri-x  i/.T  V,-lk.'<wirthHch<ifl>l,lin:  V..1    II.  PP    IWU"- 

>.S'c  l..l..\v.  lloiik  VIII.  ('Impt.r  (.7.  §;». 

,  Thi-  f. -  «r..  >l.riv.<l  frmii  111..-.-  »iilin.it».<l  (but  not  vmirhrd  for  as  ulatliU- 

cnllv  orrunit.  )  l.v  Mr.  A.  I.  H..wl.y  ;  I"  ».-  f.mmlii.  th.'«»'P"r»  o/ f*r  t  vmmUM 
m  i'lrom,  r.  r.  I'url  Dor.  llMMl.  Vol  I X,  p.  22\).  M.V  uroupir.K  of  the  ««""'""' '"• 
colur.nl^.viJtltMIU'M.nu-whHl  aiff.r.ut  fr.a..  .Mr.  IJowlpy.,  uud  1  have  added  Mr. 


INEQUALITY  AND  IT.S  CAUSES 


241 


An  entirely  different  basis  for  gauging  di.stribution  was  usee! 
by  Mr.  Charles  Booth.  In  his  nioiiutnontul  researches  on 
London,  not  being  able  to  secure  direct  iiifonnution  a.s  to  in- 
comes, he  resorted  to  the  test  —  obviously  u  significant  one 
—  of  servant  keeping.  There  is  the  broad  line  of  demarca- 
tion between  the  cliu;s  without  servants  and  that  with  them ; 
and,  in  the  latter  class,  subdivision  according  to  the  number  of 
servants.  It  appeared  that  four  fifths  ot  the  ix)pulation  of 
London  (80.1  per  cent),  or  3,372,000  persons  in  all,  belonged  to 
the  non-servant-keepiug  class.  The  upjXT  or  s('rvant-keei)iii;:; 
class  numbered  470,0(X)  perM)ns,  or  11  per  cent  of  the  pojjiila- 
tion  (the  remaining  9  per  cent  of  the  population  included  the 
servants  themselves,  and  inmates  of  hotels,  lodging  houses,  and 
institutions,  antl  others  not  readily  brought  within  the  scheme 


Servaiit-kwpiiiK  class,  total. 
Subdivided  thus: 

a.  Servants  kept,  1 .  .  .  . 

b.  "  "     '2 


c. 
d. 
c. 
/. 

0- 


n 

7 

iiuiri'  than 


Clous  kpopitiK  no  gervnnts. 


\i  MiiK.ii  OF   '    I'eii  Ct.\T  or 

I'KHHONH  TllK    I'OPrLATIOM 


47().2.-)()  I    11.0 


22,S,000 

5.,') 

144,(KM) 

3.4 

.■)7,7(K) 

l.:i 

1S,H(¥) 

0.4 

1 :»,;««) 

0.3 

7,1(K) 

0.2 

:{,(NM) 

0.1 

4,3.')0 

0.1 

;{,:{72.(KK) 

80.1 

11% 


i: 


rhi<i«iB  MotK'v'ii  ••utinmti' iif  llic  tnfnl  nf  f;iinilii"<  Imviiw  uii  iiirnmc'  lr«f<  tli:iii 
i,'HI().  Till'  (lividiiiK  liiH'  ii  |iilt  ,'it  llii'^i  imliil  i  L'M'ill)  ln'iiiiisi'  of  llx'  rXiMiiii'i'ii 
of  ini'oiiii'H  Ih'Iiiw  it.  Sif  :iKii  Mr,  '  liionjiii  Mem  vn  tiirhr^  mi-l  l'-i:i  rlii  (I'.HMii, 
p.  41.  imd  pd.i.iiin;  tlic  I'iirli.iniiiitiiv  U(|>ort  just  citcil,  in  wliicli  th'Ti'  \*  ii  ?ii:i-" 
(if  iiifiiriniitiim  ;  Mr.  W  II.  .M:illi>(  k'»  Thf  Xilmn  n.i  n  /^il.^i>lltin  bum  (l!Mlii.  la 
which  it  iH  iittcinpfiMl.  witli  .imiiii'  .<iiii'''s<.  t.i  nlwiw  cimt  cli.itriliiiticiii  is  imt  i|iiili- 
no  iincvoii  n.i  pri'vious  iiii|iiinT<  IkiI  i'iipiilii'l"i|  urn!  I'rofi'-'-iir  A  \  ^  •■iiin.''* 
rrvirw  of  Mr.  Mnllork'n  l)ook  in  thr  (Ju^irli  rh/  Jnurnul  nf  H'niiitmirn  fur  IVIirii- 
ury.  mil, 

V.-iiii.ii.i.--  siiTnni.'iri.  .-i  of  th  -  .-:.iii;ri.:,i  iiif.)rni,iti.ir,  f..r  ..'i  .-..liiitri.  -i  :i;ivi-  ;>:-n 
contributtHl  liy  Dr.  UolM'rt   .Mi'vcr  tn  thi' .mii'cc«»ivi' <Mlitioii  of  tlip  Uamlutirlir- 
bueh  der  SliiaUwiK-imitchnfttn,  lu'i  re  h.  "  Ijiiikoinmoii." 
VOL.  II  —  H 


i  1| 


242  THE  DISTRIBUTION  OF  WEALTH 

of  classification).  The  upper  class  proved  to  be  divisible  into 
sections,  according  to  the  number  of  servants  per  household 
(see  table  on  preceding  page).'  -n   i  *u 

On  the  basis  of  direct  observation,  Mr.  Booth  classified  the 
population  of  London  as  follows :  — 


Class  A  (lowest) 

"     B  (very  poor) 

"     C  aud  I)  (poor)   

"     K  aiul  F  (coinfortablc,  working)  .  . 

"     n  (lower  middle)    

"     U  (highest) 


NUMIIKR     OF 

I'Y.v.  Cent  or 

Pkhxons 

PUI'ILATIOS 

38,000 

0.9 

3I7,0(K) 

7.5 

IKJS.tXH) 

22.3 

2,1G(5,(X)0 

iJl..'> 

r.O().()(K) 

11.9 

•i.JO.OOO 

5.9 

These  figures  serve  to  indicate  the  cxctjptioii,  intimated  a 
few  moments  ago,  to  tlu-  statement  that  distribution  has  a 
completely  pvrami.lal  shape.     It  is  pyramidal  only  until  the 
very  lowest  tier  is  reaehetl.     In  that   tier,  numbers  are  not 
larger  than  in  the  tier  preodi.ig.     Not  the  very  p<3or,  but  the 
comparatively  comfortable  v.-<,rking  class,  constitute  the  largest 
single  element  in  the  ,K,pulation  of  London.     Such  would  se<..n 
al«o  to  be  the  case  in  Prussia,  if  we  admit  that  the  in.-ome  Ux 
statistics  are  at  fault  in  a.scribing  an  income  of  less  than  JOU 
marks  to  a  great  .uunber  who.  in  fact,  have  an  income  as  large. 
Probably  the  sam."  r.>sult.  as  regards  the  low.'st  .-luss,  would  bo 
n-ached  if  we  had  trustworthy  information  or  in.hcations  as  t(j 
tb.e  distribution  of  incomes  in  any  of  the  advanced  countries, 
Buch  as  (ireat  Britain,  France,  the  United  States. 

§2.  The  situation  as  regards  the  distribution  of  ownership 
of  property  is  essentially  the  same.  One  or  tw..  sets  of  figures 
will  suHic-  for  illustration.     Tlu-  British  inh.Titance  taxes  '^avo 

.  Wf  nn.l  f..,l r  „/  ,>.  Vn.„l.  of  I /.„,  S.....,,.!  S.^i.-M,  Vol.  i,  p. .".  ..-,.  <-^ 

..f    IWU)       For   l,n.vitv   1   tun.    .1- H,nl«..|   m-.tio,.  «   n.   k-.p.UK   on-  h.t  a.  t. 

LlUr.  wl.h  two  «.rv«,.U ;  .-tion  .-  .o„„.  Hnu.ll  CunU,-.  w.lh  but  two  «rv«nt^ 
M  Will  u»  hirg-r  (iiiuaU-«  with  thr.-*-  H-rviiut* ;   un.l  ho  oiv 


INEQUALITY  AND  ITS  CAUSES  243 

been  carefully  administered  on  the  same  basis  for  many  years ; 

not  throughout  with  the  same  rates  of  taxation,  but  in  a  manner 

to  show  for  a  long  period  what  are  the  numbers  of  estates  of 

varying  sizes.     Taking  the  ten  years  from  the  fiscal  year  1899- 

1900  through  the  fiscal  year  1908-1909,  we  find  that,  on  the 

average,  there  were  probated  each  year  estates  as  follows  : '  — 

Small  estates,  not  oxoeeding     £'if}0 48,000 

Estates  from  £500  to     £1,(X)0 9.933 

1,000"       10,0(X) 16,484 

10,000"       2.'),(MX) 2,311 

"         "  25,000"       50,0(X) 911 

••         "  50,000  "       75,000 286 

"         "  75,000  "      100,000 140 

"         "         100,0(K)  '•      150,000 135 

"         "        ir)0,000  "     250,000 88 

"         "        2.50,000  "     ."iOO.OOO 51 

.500.0(M)  "  1,000,(X)0 18 

over  1,(K)0,0(M) 7  to  8 

For  Prussia  we  have  figures  of  a  similar  sort,  published  in 
connection  with  thi>  Ergamunyssteuer,  a  tax  baaed  on  the  in- 
come tax  returns,  l)ut  levied  with  respect  to  property,  not  in- 
come. In  1<.M)8,  there  were  in  round  numbers  1,.")IK),000  persons 
assessed  as  having  property  of  (iOOO  marks  or  more ;  these  per- 
Bons  and  their  families  numbered  5,350,(M)0  in  all.  Among  the 
persons  as.scssed :  -  — 

731,700  persona  had  property  from  6,000  to      20,000  marks 

202,;{00  2(),(KK)  "       32,(XX)  " 

203,800  32,(KK)  "       .52,000  " 

100,.5O0  "        "           "            "  .52,000  "      100,(X)0  " 

79.flOO  ' "  100,(X)0  "     2(X),000  " 

43,.3fl0  "        "           "            "  2(X),0()0  "     r)00.000  '* 

12,000  "  .5(X),IMM)  "   I.(H)0,(KK)  " 

5,300  "  1,000.1  HK)  "  2,(KX),(KX)  " 

3,0(K)  ov.>r  2.0(K),0«M)  marks. 

'  I  have  enlriilnt''d  tln'si-  uvi-iiiici  -«,  for  ill  i>xi  .-iit  th.  Hitmlli'nt  o»ti\ti'-<,  (vita 
t!u'  flRiirofl  Rivi'ii  fi)r  thf  Mcvrral  yiiirs  in  the  SlitHshtnl  .{'istritrl  for  the  f  ' 

Kingitnm.  For  the  »"niall<'<t  i>Mt:»ti>s,  thr  SlitlUlirnl  AhflrnrI  doi'd  nut  t;ivi'  tin" 
full  totiil,  ninpi-  it  tiikis  tin  nci-oiiiit  of  cutatM  Ichs  thun  CKM)  nrt,  Tin'  fiirur" 
giviiri  tilu>vf<  (tlii>  ftrHt  ill  thr  tnlili*)  l«  in  ruilnrl  riMinK(>rn,  nn.}  iia  iint  st.'itistif'nlty 
nri'iiriiti' ;    (nil  it  in  rii'iiirati'  iiimmli  fur  tin-  purpoMc  in  (iiiiid 

'  I  tiiko  thi'sf>  fiRiiri'.'"  fnini  tln'  Vi nilrirhrniir  ('rhfrniihl  !«iil>initt<Ml  tii  the  I'm;'- 
nioti  l.iiiiiltnR  fur  ttn'  ("hi'iiI  m  iir  I1M1H  IKtW.  Thi-y  ijivp  tin-  lUim-Mninits  mada 
tor  tlio  triciilliiil   licriod    I'.MIS    III  10. 


4 


\i 


244 


THE  DISTRIBUTION  OF  WEALTH 


i: 


The  results  are  for  both  countries  essentially  similar  to  those 
for  incomes.  The  number  of  millionaires  is  very  small  indeed  ; 
that  of  the  rich  remains  still  small ;  the  numbers  become  larger 
as  the  properties  beco..ie  lo.s ;  the  very  least  properties  are 
the  most  numerous  of  all.  Just  how  far  down  in  the  scale  the 
same  tendency  would  extend,  it  is  impossible  to  say ;  but  it  is 
certain  that  the  persons  having  properties  below  the  limits  in 
these  tables  (greatly  exceed  in  number  those  within  their  range. 
In  Great  Britain,  only  one  out  of  six  adults  leaves  at  (a-ath 
as  much  as  £100  of  property,  and  only  one  out  of  twenty 
leaves  as  much  as  £1000.'  In  Prussia  alwut  one  out  of  seven 
in  the  population  had  6000  marks  or  more ;  six  sevenths  were 
not  affected  by  the  property  tax,  l)ecause  their  nroperty  was 
less  than  6000  marks.^  Those  who  possess  any  considerable 
amount  are  but  a  small  minority  of  the  population  in  any  of 
the  countries  of  advanced  civilization. 

To  the  general  statement  that  distril)ution  tends  to  be  taper- 
ing, one  qualification  should  be  attached.  In  most  countries 
the  ownership  of  agricultural  laud  is  not  highly  concentrated. 
It  is  highly  concentrated  in  (Jn-at  Britain;  and  hence  in  her 
case  the  general  situation  is  specially  accentuated.  But  in 
southern  and  western  Germany,  in  France,  in  the  Scandinavian 
countries,  peasant  proprietorship  is  the  rule,  and  a  great  host 
of  [)ersons  hence  are  prop(>rty  owners  on  a  moderate  scale. 
This  is  doubtless  the  main  nason  why  the  proportion  of  property 
ownris.  as  indicated  by  the  figures  just  given,  is  larger  in  Prussia 
tluiu  in  Great  Britain.  So,  in  the  United  States,  the  independ- 
ent farmer,  owning  and  tilling  the  "one-family  farm,"  is  still 
the  typical  figure  in  agriculture.  As  farming  has  not  suc- 
cumbed to  the  drift  toward  large-scale  production,  so  it  does 

•  Mr.  rW\u,.i:x  M.,n.-v.  in  hix  Rirh--  <im/  Pnrcrt,,.  PP.  51,72,  ovcrststoR  lio 
caso,  rrnmrkitiK  tliuf  only  uiir  out  "f  t.-n  in  the  population  Iobvob  nny  pmix-rty 
nt  ilciilh.  .Ah  Mr.  .\.  I,.  Mowlcv  hiw  iM.iiitid  cmt  !.■  me,  the  siRnifii-ant  projxjr- 
tioii  ii  :;.)!  U;  biU:\  i.,j,-i!:iti'>n.  >"!t  t-  !!»■  :;=!::!!  population:  h-m-..  th«  propor- 
tion Htiiti'd  in  ihr  trxt,  —  oni'  out  of  six  adult:*, 

tThr  totiil  populMlion  of  l'rn!.sia  in  l'.«)^  wuh  Hs.tMMMHK) ;  the  fttniillM  of  the 
l,r>(K),(HK»  oirwuiM  a^.-r.^m  (1  for  propirl>  tax  nunil«'r<'d  .I.JOO.OOO  heads. 


INEQUALITY  AND  ITS  CAUSES 


245 


not  manifest  the  tendency  to  concentration  of  wealth  which  is 
in  general  the  consequence  of  large-scale  production.  Barring 
this  exception,  we  may  say  that  inequality,  and  a  pyramidal 
form  of  inequality,  is  characteristic  of  the  distribution  of 
property  as  well  as  of  income. 

§  3.   Another  question   is   whetlier   inequality  is  becoming 
greater  or  less;   whether  it  is  true,  as  often  alleged,  that  the 
rich  are  becoming  richer,  and  the  poor  poorer.     Here,  again, 
almost  the  only  sources  of  precise  information  are  in  the  income 
tax  statistics  of  German  states.     These  indicate  that  in  Ger- 
many the  rich  are  indeed  becoming  richer,  but  the  poor  not 
poorer.     The  incomes  of  the  poor  are  rising.     There  is,  further, 
a  steady  movement  upwards ;   u  certain  proportion  of  persons 
are  constantly  swinging  tliemselves  into  a  more  prosperous  tier. 
The   comfortable  working  class  and   the  lower  middle  class 
become  not  weaker,  but  stronger.     But  the  incomes  of  the 
rich  are  rising  also,  and  the  proportion  of  persons  in  the  well- 
to-do  and  rich  classes  is  liecoming  greater.     The  class  of  the 
rich,  though  it  remains  small,  seems  to  grow  faster  in  numbers 
than  thr  other  classes,  and  the  proportion  swells  which  the 
rich  secure  of  the  total  income.     Yet  there  is  no  tendency 
toward  the  disappearance  of  the  middle  class  ;   nor  is  there  any 
tendency  toward  the  complete  absorption  of  tin-  high  incomes 
by  a  decreasing  number  of  very  rich  persons.     There  are  thus 
indications   of   an    increasing   concentration    of   income    (and 
presumably  of  wealth)   in  the  hands  of  the  most  prosperous 
cla.sses,  yi  c  with  an  increase  in  the  nurnln-rs  of  that  class,  and 
not  at  the  expense  of  any  deterioration  in  the  condition  of  tin- 
less  prosperous.     These  are  not,  in  the  view  of  persons  to  whom 
marked  ine(|uality  is  in  itself  unwelcome,  tendencies  toward  an 
ideal  .'situation.     But  they  are  probably  the  inevitable  accom 
panii  icnts  of  a  rapid  burst  of  jjrogress. 

In  the  I'nited  States  the  accumulation  of  conspicuous  great 
fortunes  has  led  to  a  belief  in  many  quarters  that  inequality  is 
rapidly  becoming  much  more  iii'centuated.  But  the  country  is 
vast  and  its  population  enormous ;   the  jjcrsuns  of  the  middle 


fc.] 

i 

:  \ 


I 

I 


246 


THE  DISTRIBUTION  OF  WEALTH 


hi 


.i 


class,  whether  in  its  lower  or  upper  range,  though  not  so  con- 
spicuous as  the  rich,  are  very  many.  It  is  possible  that  the 
numbers  and  the  incomes  of  the  millionaires  have  increased 
relatively  to  the  numbers  and  incomes  of  those  who  are  simply 
rich  or  well-to-<lo ;  for  the  topmost  cla.ss  has  been  swelled  not 
only  by  the  working  of  the  modern  tendency  to  large-scale 
industry,  but  also  bj'  the  ixiculiar  cou'litions  of  American  cor- 
porations, by  the  wider  range  of  privately  managed  industries, 
by  the  extraordinary  pace  of  material  progress.  We  are  quite 
without  accuratr  information  as  to  the  distribution  of  incoff 
in  our  own  country,  and  as  to  the  drift  of  changes  in  distrib\- 
tion.  It  may  bt  guessed  that  on  the  whole  the  situatioh  i; 
not  essentially  different  from  that  in  a  country  Uke  Pri  s:  v, 
but  with  t  'erything  on  a  larger  s-cale.' 

§  4.  Such  are  the  broad  facts  as  to  inequality.  Ht  •  iv.  - 
they  to  be  explained?  and  how,  if  at  all,  to  Ix'  justified? 

The  ciuses  of  i  lequality  are  reducible  to  two,  —  inlwrn  dii' 
ferences  m  gifts,  and  the  maintenance  of  acquired  advantages 
through  environment  and  through  V"  inheritance  of  property. 
The  origin  of  inequality  is  to  be  found  in  the  unequal  endow- 
ments of  men ;  its  perpet-ntion  in  the  influence  of  the  inher- 
itance both  of  property  and  of  opportunity,  and  also  in  the 
continued  influence  of  native  ability  transmitted  from  ancestor 
to  descendant. 

No  doubt  at  the  outset  all  differences  arose  from  the  inborn 
superiority  of  some  men  over  others.  The  savagi>  chief  txcels 
his  fellows  in  streiigth  ami  in  cunning.    Throughout  liistory 


'  On  till'  trndciicics  in  disfriliutinn  shown  liy  Gi'rniaii  fimirfH,  si'O  the  well- 
known  iHipcr  l>y  ProfcMHor  Adolf  Wngnor  in  thr  Zril!<rlirifl  d.  Preunn.  Slnliiil. 
Uiirenu,  l'M)i,  p.  112  and  liaexim.  Hitt  ronclusioiis  ari'  roiifirnic<l  Ity  Rotx^rt 
Mi-ycr,  in  tlu'  lliui'!iii<rl<rh,(cli,J,r  Sldiitswi.ffi-nKrhuftni,  \'ti[.  Ill,  p.  OSS  (tllird 
pditinn.  I'.MHI).  Cp,  Sonihnrt,  D,  uhrhr  Volkuvirtsrhnft  im  10.  Jnhrhundrrt, 
i,.  .'lOli.  (lursKCM  f<ir  the  I'nilcd  Stntosare  in  C.  H.  Spahr's  Present  Utatribution 
of  'iVeiillh  in  llii-  Crtilrd  Sliilt:i  (l^!Mi). 

Thn    Woll-knnlVM    prnnDS:.!    of     Prr>f*»««(>r    P!»r.»t(>   tn   ^tnW   thf     r*i*!ifr:i!     !/^ni!i»I'.f*V 

in  niatlirmatir-id  tornig  is  in  hia  Cdutk  d' Economie.  Politique,  Vol.  H,  Boolf  III, 
Clmptrr  I.  where  are  alMo  fij{ures  from  vurio,-  sourees.  I'rofeesor  I'areto  points 
out  that  di.itriliutioM  has  not  so  nmi'li  Ihesliiii  e  of  a  pyramid  an  the  more  rounded 
and  tapering  Hliupt!  of  an  inverti'<l  peg  top. 


INEQUALITY  AND  ITS  CAUSES 


247 


the  strong  and  able  have  come  to  the  fore.  They  continue  to 
do  so  in  the  peaceful  rivalry  of  civilized  communities.  In  our 
present  society,  the  dilTercnces  in  wages  —  that  is,  in  the  in- 
comes from  all  f^orts  of  labor  —  are  the  results,  in  largo  degree 
at  least,  of  differences  in  endowments.  Th«  striking  case  in 
modern  times  is  that  of  the  business  man.  Especially  in  the 
upper  tier,  high  native  ability  explains  the  e.vceptional  earn- 
ings of  the  fortunate  few  among  the  business  class.  In  other 
occupations,  though  traming  and  environment  count  for  much, 
inborn  gifts  are  still  of  dominant  importance  in  explaining  the 
largest  incomes  from  labor. 

But  at  a  very  t>arly  stage  in  the  development  of  society,  tins 
■riginal  cause  of  difference  is  modified,  often  thrust  aside,  by 
the  perpetuation  of  established  advantages.  In  tiie  feudal 
system,  anu  in  any  society  organized  on  a  basis  of  caste,  in- 
equality is  maintained  by  force  of  rigid  law.  In  the  supposedly 
free  and  competitive  society  of  modern  times,  advantage  still 
tends  to  maintain  itself.  It  does  so  in  two  wayi^, —  through 
the  influence  of  environment  and  opportunity,  and  through 
the  inheritance  of  property. 

Environment  and  o|)ix)rtunity  have  already  btnm  considered.' 
Though  it  is  not  certain  to  what  degree  social  stratification  rests 
on  factitious  advantages,  to  what  degree  on  the  inborn  moral 
and  intellectual  qualities  of  the  seve  al  classes,  it  is  clear  that 
the  artificial  causes  play  a  great  part.  A  multitude  of  forces 
tend  to  keep  a  person  in  the  social  grade  of  his  parents.  Only 
those  of  exce|)tioi\al  gifts  rise  easily  above  it,  and  onb  those  of 
ex'^ep+ional  defects  fall  below  it. 

'.ore  imj)ortant,  however,  is  the  direct  inheritance  of  prop<'rty. 
It  .flueuce  is  enonnous.  C)bviously,  this  alone  explains  M.t 
perpetuation  of  "fimded"  incomes,  —  those  derived  fmin 
capital,  lanri,  income-yielding  property  of  all  sorts,  -  mikI  so 
explains  the  great  continuing  gulf  between  the  hav!>s  and  the 
have-nots,  It  serves  also  to  strengthen  all  the  lin<.t  c^f  social 
Htratification,  and  U)  reenforc*;  the  Induenccs  of  custom  and 

>  vJUuytor  47. 


248 


THE  DISTRIBUTION   OF  WEALTH 


habit.  Persons  who  inherit  property  inherit  u";  ■>  opportunity. 
They  have  a  Ijetter  start,  a  more  stimulating  .'ivironment,  a 
higher  ambition.  They  are  hkely  to  secure  higher  incomes, 
and  to  .^reserve  a  higher  staiuhinl  of  living  by  late  marriases 
and  few  offspring.  The  institution  of  inheritance  promotes 
social  stratification  through  its  indirect  etTects  not  less  than 
through  its  direct. 

Nothing  illu.stratcs  so  fully  the  combined  influence  of  inborn 
gifts,  of  proju-rty  inheritance,  of  perpetuated  environment, 
as  the  |K)sition  of  the  person  dominant  in  modern  society,  — 
the  money-making  business  man.  In  the  (irst  stages  of  any 
individual  business  man's  career,  the  possession  of  means  counts 
for  much.  After  the  initial  stage,  native  altility  tells  more  and 
more.  By  whatever  ways  he  gets  his  start,  the  leader  of  in- 
dustry prospers  and  a<'cumulates ;  and,  as  he  accumulates,  is 
again  favored  more  ami  mon-  by  large  possessions.  When  he 
dies,  he  leaves  a  trail  of  descendants,  wlio  perhaps  inherit 
ability  and  almost  i-ertainly  inherit  pro|M'rty.  With  proju-rty 
tliey  inherit  a  new  environment  and  new  op|H»rtunities.  It 
may  mdee<l  happen  that  the  property  will  be  dissipated  through 
lack  of  thrift  or  judgment ,  or  subdivided  among  heirs  into  minuto 
|K)rtions.  But  neither  of  these  results  is  probabh' ;  an'  even 
it  they  occur,  the  descendants  have  ambitions  and  surround- 
ings very  dill«'rent  from  those  of  the  [xxtrer  class  from  which 
the  ancestor  may  have  sprung.  In  every  way  imHjualities, 
even  though  they  arise  at  the  outs<'t  without  favor,  t4'nd  to  l>o 
jM'riM'tuated  l>y  inherilance  and  environment. 

§  5.  What  cai\  be  ^.iid  in  jnstihcation  of  the  inheritance  of 
property,  which  ai-ls  so  powerfully  to  maintain  ininpiality? 

Inht  lit.inee  antse  hi>turically  from  the  sense  of  the  unity 
of  the  faniiiy.  The  ancestor  in  early  times  was  not  so 
much  the  inuneihate  owner  of  the  property  as  the  head  and 
representative  of  the  family  wlii<li  owned  the  proiwrty.  Its 
devolution  to  the  surviving  members  wiis  no  change  of  owner- 
hhip.  but  a  transfer  to  new  re|>ri  Hiilatives  of  the  c<mtin\iinK 
owners,     Ibit  this  explanilicn  of  inheritance,  though  historically 


INEQUALITY  AND  ITS  CAUSES 


249 


sufficient,  serves  little  to  explain  the  institution  as  it  stands 
now,  still  less  to  justify  it.  The  ground  on  which  inheritance 
is  now  to  be  defended  is  frankly  utilitarian.  In  a  society  organ- 
ized on  the  basis  of  private  proprrty,  inheritance  is  essential  to 
the  maintenance  of  capital. 

It  may  be  open  to  question  how  far  inheritance  is  necessary 
for  the  tli-st  steps  in  accunnilatioii.  The  motives  that  lead  to 
money-making  and  to  the  initial  stages  of  saving  and  invest- 
ment are  various:  not  only  the  safeguarding  of  the  future  for 
one's  self  and  one's  dependents,  but  social  ambition,  the  love 
of  distinction,  the  impulses  to  activity  and  t«)  domination. 
But,  for  sustained  accunmlation  and  permanent  investment,  the 
main  motives  are  domestic  affection  and  family  ambition.  The 
bequest  of  a  competence  or  a  fortune,  though  often  a  dubious 
lMH)n  for  the  descendants,  is  a  mainspring  for  its  upbuilding 
by  the  ancestor.  If  we  were  to  put  an  en<l  to  inheritance, 
decref  ing  that  all  estates  should  es<lieat  to  the  publie  at  death, 
the  i)wner  would  conunonly  dis.sipate  iii>  |)roperty.  One  of 
the  motives  for  its  tl'-t  arcpiisition  would  be  gone,  and  certainly 
the  chief  m«»tive  for  its  maintenance.  Why  aecumulate  aiul 
invest  for  the  iM-nelit  of  the  comniimity  at  large'.' 

It  is  on  this  ground  that  the  ta.xatioti  of  inheritance  should 
1)0  ke,  within  limits.  As  will  appear  later,  t.ie  transfer  of 
property  at  death  gives  a  convi-nieiit  ««'t'a."-i<in  lor  the  levy  of 
taxes  and  for  the  application  of  progressive  rat  s.'  Hut  sm-h 
taxes  tend  to  trench  on  ca|)ital.  Inle^^s  kept  within  moderate 
limits,  they  are  paid  out  of  the  primipal  of  the  estate,  not  out 
of  income;  and  this  lessening  of  individual's  "capital"  pr< - 
srmiibly  leads  to  a  corres|»onding  lessening  of  soeial  capil.il 
Mo'c  than  this  ;  the  hi(j;her  they  Ix'coini  ,  and  the  neanr  lli'  \ 
approach  to  (•<»hfisc:iiioii.  the  more  pr<ilial)|e  it  i-<  that  tin' 
original  accinuuhilion  of  eapital  will  lie  rinckrd.  .lust  at  uli  i' 
IMijtit  'I  harmful  etTect  i-  reu  lied  at  ultt  point  the  •"  lal 
gain  irom  the  tax  revenue  and  fmui  Hie  niitiiiution  of  uit<|u.ilii\ 

I  rtpp  KiHik   VII!.  ''liMpi'   'm     !  '>    ""I  I'l  K' 111  rul   wluil    m  »«i(l  in  (  (■  u  t' i« 
06  mill  l'>7  nil  I'mgnihui    I'.n  itimi 


250 


THE  DISTRIBUTION  OF  WEALTH 


A    i 


is  outweiRhed  by  the  social  loss  from  the  oirtailmpnt  of  capital 
—  is  as  impossiblu  to  say  as  it  is  to  dt'tcrnunt'  just  at  what 
rate  interest  must  remain  in  order  to  induce  accumulation.  A 
limit,  none  the  less,  there  is.  The  fact  that  tavos  on  inheritances 
and  cm  the  recipients  of  funded  inconu  <  can  he  levied  at  mo<ler- 
nte  rates  without  leading  to  sensible  impairment  of  capital  does 
not  prove  that  they  can  Im-  raised  indefinitely  higher  without 
this  consequence. 

As  moderate  taxes  on  inheritances  are  not  inconsistent  with 
the  maintenance  of  the  essential  utility  of  the  institution,  so 
some  limitations  on  be<juest  and  inheritance  are  not  incon- 
sistent. There  is  no  reason  wliy  intestate  succession  should 
proceed  ind(!(initoly  to  the  most  distant  kin.  Where  a  man 
does  not  trouble  himself  to  make  ii  will,  it  may  fairly  In-  pre- 
sumed that  his  proiK'rty  was  not  got  together  with  an  eye  to 
distant  heirs.  Neither  his  accunnilati.m  nor  that  by  others 
will  be  checketl  if  tl»e  public  appropriates  a  great  slice,  even 
till'  whole,  of  such  windfalls.  On  similar  grounds  it  is  justili- 
altle  to  make  succn-ssitm  tuxes  heavier  us  the  degree  of  relation- 
ship to  the  dt  cedent  wliether  testate  or  int.-st.ite  -  Ix'coines 
m«»re  and  more  remote. 

Something  of  the  same  sort  may  be  said  in  favor  of  tlie 
linutation,  suggested  long  ago  by  John  Stuart  .Mill,  of  the  sum 
transmissible  to  any  single  heir  or  dcvis.-e.  So  long  as  the 
posses-or  of  proix-rty  is  free  to  dis|K)se  of  it  (or  the  bulk  of  it, 
after  the  dedui'tioii  of  inherit ame  taxes)  according  to  his  iwu 
volition.  li<  may  Iw  exp<'«  t.-d  to  refrain  from  di  ipaling  it 
during  I. IS  lifetime.  The  urountl  here  i-,  indeed  more  uncer- 
tain. Tliough  the  nionev-^Mtliering  impul-es,  stroim  in  tiiem- 
s..lve>^,  are  in  slieh  a  ea.-,e  >treli«thelied  liy  tiM'  IiImtIv  to  dispose 
of  the  property  in  .^-ome  way,  the  limitation  of  the  amounts 
traii^'iiu-'ilile  to  imnudiale  de^eendiuits  may  opiTale  to  elierk 
UiMumulalioii.  Here  we  must  fall  liaik  on  the  probaliility 
that  what  may  conceivaidy  U'  lost  to  eapital  m  this  wiiy  will 
l.e  ma<l<  up  liy  tht  giuwlli  oi  a' cniuulitii-u  e! -e  where  ;  for  in 
our  mi'tl.  Ill  MMietii  .  the  fones  ihul  lead  to  accumulation  are 


INEQUALITY  AND  ITS  CAUSES 


251 


1 

! 


enormously  powerful,  and  arc  likciy  to  override  all  t)ut  the 
stronRost  obstacles.  The  French  system,  of  limit msr  the  amount 
which  may  ro  outside  the  circle  of  heirs  (oni..  ko  much  can  Ix' 
freely  devised  as  equals  the  share  of  any  one  heir),  seem-  of 
nnich  more  disputable  advantuKc.  It  assures  to  tacii  heir  a 
property,  perhaps  a  larRc  one,  irrespective  of  his  desert  in  the 
eyes  of  the  decedent  or  of  tiie  world  at  lar^e ;  it  litnits  tin- 
power  of  hcfpiest  for  pul)li''  pun>08es ;  and  it  i-imnot  he  sup- 
posed to  foster  accumulation  more  than  would  lumplete  Ircr- 
dom  of  hcqui'st. 

InlM'ritHiicc,  in  sum,  is  an  indispensable  part  of  tlir  institu- 
tion of  |)roi«'rty.  So  louR  as  the  community  relies  on  a.i'ii- 
mul.ition  by  individuals,  and  on  ownership  and  manatri'ment 
i)y  them,  for  the  suT)i)ly  of  its  material  eqtiipmeut,  it  must 
Hive  scope  to  the  mt)tives  that  lead  to  the  formation  and  main- 
tenanc<'  of  capital  through  tlie  action  of  these  individuals. 

§  (■).  What  now  of  the  ulterior  question,  -the  b.asis  of  the 
whole  rr^ninte  of  private  property?  Somethim;  may  lie  said  on 
this  topic  lii-rc,  even  thoiinh  tlie  coiisi.leration  of  the  clo.sely 
related  topic  of  socialism  is  |>ostiK)ned  to  a  later  itage.' 

The  theory  that  pntperty  rests  f>ri  labor,  and  therefore  on 
what  is  conceived  to  Im-  the  "naliir.al"  ni!;ht  of  each  man  to 
that  whidi  he  lias  produred,  has  none  into  the  hnnlter  room  of 
discarded  doctrines.  It  was  el.'ib(.rate<l  bv  Locke,  accepted 
more  or  less  through  the  ei«hfeenth  eentiiry.  and  used  freely  by 
the  KuKlish  economi-tx  of  the  fir>t  half  of  the  nineteenth  cen- 
tury. F^ut  it  play- little  p.'irt  in  modern  disiussion.  "Natural" 
rights  have  (|iiite  (ioiie  out  of  fashion.  Where  there  is  a  highly 
complex  divisK.n  of  labnr,  micIi  as  eharaeterize';  existinn  society, 
it  is  impossitile  to  di-tiimui-h  how  mneh  finy  one  individual  has 
C(mtributed  to  tiie  whrlr  (iiilpiit.  to  sa\,  thi'*  is  Iih  -penlie 
output,  therefore  riitliih'  hi-  pi.ip'  I'v  '••veil  if  it  were  p<.^-.il.le 
Hti  tn  fhxtitiKui'-h.  no  ii.iiiii  il  or  inhereni  riuhl  wmilcl  thircl)y 
be  establivdiMJ  l.e.a^t  of  all  w  il  po-ilile  on  xneli  lea-onini;  to 
pi-tif 


V   mill nlanee 


.\.  tl 


le    in 


■  iituiinii  of  inheritance  can 


I 


1  Her  II. "■k  Vt|,  <"l<apti  t<  tV»  ■iii'l  ').'). 


i 

i 

t 

1 


Nil 


»f 


» 


*4 


<4  !- 


k 


252 


THE  DISTRIBUTION  OF  WEALTH 


sustainod  only  on  a  basis  of  utilitarianism,  so  can  that  of  property 
in  general. 

The  utilitarian  rcasoninR  may  ho  summarized  as  follows  :  — 
Men  will  not  labor  steadily  and  effectively  exeept  in  their 
own  behalf.  Lal)«)r  is  irksonic,  the  sense  of  common  interest 
weak.  Labor  will  not  be  exerted  continuously  and  vigorou.sly 
except  for  individual  benefit.  It  is  strenuous  and  well  directed 
in  proportion  to  the  expected  return. 

Inequality  arises  even  under  tlu'  simplest  conditions,  from 
the  une(|ual  endowments  of  men.  It  becomes  accentuated 
with  the  KrowiuK  complexity  of  the  divi.sion  of  lalM)r.  Where 
there  is  no  division  of  labor,  every  man  is  led  to  do  that  which 
brings  to  hitn  ft)r  his  own  uses  the  largest  direct  return  to  lal>or. 
In  a  varied  society,  he  is  led  to  do  that  which  l)rinKs  indirec  tly 
the  largest  return;  that  which  others  value  highly  and  for 
which  they  will  P'ly  highly.  ( 'omiM-titicm  and  self-interest 
tims  promote  not  only  the  vigor  of  lal)or,  but  the  effective 
organization  of  proiluction.  .\l.ove  all.  as  the  industrial  situa- 
tion Itecomes  complex,  tlie  middiemaii  appears  the  employiT, 
merchant,  banker;  indispensal>le  ligtires  for  the  progress  of 
industry.  Inequality  Ix-conies  more  marked  as  increasing 
complexity  gives  play  to  very  varying  al>ilities.  Whether  tlue 
to  iliffercnces  of  inborn  gifts  (»r  to  tlie  devehtping  differences 
that  ari.se  from  aci|uired  advantage,  it  remains  an  indis|>ensable 
s|)ur  to  the  full  exercise  of  eacli  man's  capacities. 

Wide  variations  thus  arise,  in  earnings,  |K),s,sesstwns,  avai'- 
able  sur|>liis.  The  essence  of  capital  is  surjilus."  Accumulation 
takes  place  by  many  individuals,  ami  suri)lus  means  are  utilized 
bv  those  who  see  tiiue-u.viiig  \vay>  of  duectiiig  lalior  with  effect. 
Sustained  accumulation  and  inv.-fmenl  on  a  large  scale  will 
not  take  i>iace  unless  tin  re  li  ail  inducement,  'i'lie  phenomenon 
of  iiitenst  on  capital  app'ii-^  Not  IcH-.  tlian  inler<'st,  iidicrit- 
ance.  whatever  it»  hiloric  oiium,  ojierales  as  an  indispen.sable 
stimulus  to  the  >aving  of  iinviitc  means  and  the  incr<'ii»e  of 
social  capital. 

'  C«>nii«ir<   HiM.W  1.  Cbaptir  ft.  |  3. 


INEQUALITY  AND   ITS  CAUSES 


25;? 


■^ 


So  the  leisure  class  emerges,  —  the  result  of  inequality, 
accumulation,  interest,  inlieritance.  The  inimmliate  effect  of 
idleness  on  the  part  of  a  fraction  of  the  comniunity  is  oi>viously 
to  lessen  tlie  total  available  lalior  force ;  the  K^eat  mass  must 
work  HOT  only  for  their  own  maintenance,  l)\it  for  tliat  of  tliis 
privileged  fraction.  Hut  the  prospect  of  hcins  a  memhcr  of 
the  leisiaTf  cla.-s  has  j)rove«l  a  wonderfully  powerful  bait  to 
etYectivi'  I'xertiou  and  permanent  iiivistmeut.  False  as  the 
iileiil  of  eseiiiptioii  from  labor  M'cins  to  the  thinkiriK  few,  and 
doubtful  t^  uiay  Ix-  the  happiue.-ss  of  those  born  to  a  life  of 
leisure,  tliv  imftc  (tf  privileged  position  for  one's  self  or  one's 
kin  iiaH  Ix-eii  ilie  main  motive  force  for  the  material  progress 
of  soei«'ty. 

I'roperty  in  land  is  part  of  t!ie  mechanism  for  stinuilatinK 
effc'tive  labor  and  ••tTective  iii\<'sttuent.  Production  caimot 
be  carried  on  witlunit  land  ;  all  pl.iiit  must  be  iiicori)orated  in  u 
site.  Full  title  and  nwncrsliip  to  land  have  been  indispensable 
to  the  growth  of  capital.  Whether  or  no  such  uiKpialified 
projx'rty  right  be  essential  in  an  ideally  constructed  society, 
and  whatever  l)o  the  |K)ssil)iliti-  -  of  future  restrii'tion  in  moiiern 
conununities,  absolute  pnvati'  title  to  laud  has  bet-n  histori- 
cally the  means  of  securini:  its  ificf  ive  use.  Thus  rent  (U-velops 
as  an  element  in  distribution,  m  part  intermingled  with  return 
on  capital  Iwyond  [Missibility  ol  (liMTiminati«»n,  and  in  any  case 
an  inevitable  outgrowth  of  the  >ystcm  of  i)roperty  in  its  cruder 
stages. 

Tlu«  reatwming  of  the  preeediiig  paragraphs,  followed  without 
flinching  and  without  (|ualificalioii,  would  lead  to  the  conclu- 
sion that  desert  on  lln'  |)arl  of  members  of  the  leisiin'  class  is 

lot  n<'cessary  to  ju^'ily  the  existem f  the  class.      Its  position 

of  eas'-  and  comfort  is  a  bait  to  stimulate  ambition  and  acfu- 
mulation.  Direct  service  l«\  (he  survivors  and  desci-ndaiil-  of 
fortune  founders  would  srcin  to  be  iiiun.'iti'rial.  Vi  l  the  cuir'nt 
notions  of  justice.  vaniH'  thitiigh  they  are,  coniiotf  some  rl.i^ir 
relation  between  service  and  irwanl  ;  and  the  (|Ui'slion  perswts 
whetluT  the  personal  (juahties  of  tlie  privilegeil  and  their  iin- 


I 


I 


I 


254 


THE  DISTRIBUTION  OF  WEALTH 


mediate  contribution  to  the  common  welfare  must  not  be  con- 
sidered in  any  solid  justification  of  existing  inequality. 

The  question  is  answeretl  in  the  affirmative  by  many  thinkers/ 
who  hold  that  there  must  l)e  a  continuing  service  from  the 
class  as  a  whole,  if  not  from  each  and  every  member.  It  is 
pointed  out  that,  though  the  origin  of  ineciuality  is  to  be  traced 
to  the  unequal  endowments  of  men,  it  is  to  be  sought  also  in 
varying  services.  In  the  earlier  stages  of  developing  stratifica- 
tion, social  classes  — whether  priestly  or  feudal  or  industrial  — 
sprang  up  because  some  individuals  were  in  a  greater  measure 
s(>rviceable  to  the  general  l)ody.  Not  merely  predatory  strength 
and  cunning,  but  abilities  exercised  in  a  manner  to  advance  the 
coimnon  g(K)d,  explain  the  miiversal  dilTerentiation  of  society. 
But  during  the  later  stages,  when  the  superior  classes  have 
attained  an  established  position  of  privilege,  it  becomes  doubt- 
ful whether  ability  and  service  are  maintaineil  and  whether 
the  justification  of  inequality  still  holds. 

Such  questions  go  to  the  foundations  of  the  theory  of  ethics. 

On  strict  hedonistic  principle-,  it  may  Ik-  consistently  maintained 

that    personal  desert    is    immaterial.     The    coolly  calculating 

economist  may  accept  the  idle  rich  as  inevitable  adjuncts  of  a 

system  which  is  itself  founded  on  the  intellectual  and  moral 

limitations  of  men,  and  he  may  leave  their  way  of  life  to  the 

preacher.     1  will  not  undertake  to  say  what  are  the  last  criteria 

of  justice,  for  indiviiUials  or  for  society  ;  but  it  is  obvious  that 

the  justilicatiou  of  ineciuality  and  of  all  its  eoiiseiiuences  becomes 

more  effective  when  the  leisure  das-  is  of  service  directly  as 

well  as  iiiilirectly.     Tliougli  the  mere  exist ctiee  of  a  capitalistic 

aristoiTMf  y  oj>ei:i1<  -  to  spur  ambition  iimi  to  conserve  capital, 

itM  jxtsition  i>  munensely  stnmRer  if  the  itnliviilnal  members 

eoiitni)iite  activelv  to  the  general  well-being,  throuuli  continvjed 

industrial    le;iti.r'^hip,    thnniKJi    the    adv.'irieemetit    of"    science, 

literature,  und  art,  through  high-minded  public  ••ervici'. 


I  H»,>.  f,,t  p»itiin>li  .Srhiiiiiili  r,  V.iLnwtrlhaehnJInlfhrr  \i,\  I  up  4(H>  4tl. 
I'l.  I'„.il».li  /•>'!.'  H-,k  1\  I'lrl  Hi  Cliii't.r  ill  S  ;t  ;|i  Tl.i,  ml  ..I  1SS«>  , 
ttn<l  Drwry   iii.l  'I  iift.i.  hthii-.  <  liupt.  r  Will    H  1    ' 


INEQUALITY   AND  ITS  CAUSES 


255 


Whether  contributions  of  this  sort  will,  in  fact,  be  rendered, 
depends  not  only  on  ability  (and  this  again  on  heredity),  but 
on  the  public  opinion  of  the  privile)?<'d  class  and  indeed  of 
society  at  large  It  cannot  be  said  that  the  habits  and  ideals 
of  the  rich  give  great  promise. 

Rapiiii',  avarice,  oxponae, 
This  is  idolatry ;  and  these  we  adoro. 

Nor  are  the  ideals  of  the  great  mass  of  the  people  essentially 
different.  Th«>y  are  not  genuinely  censorious  of  the  rich,  but 
rather  envious,  and  ready  to  imitate  their  ways.  How  far  the 
spread  of  better  education  and  the  democratization  of  .society 
will  afT»'<t  the  prevailing  ideals,  it  would  be  rash  to  predict. 
Something  is  gained  if  the  situation  is  laid  bare;  and  herein 
the  growing  attention  to  economic  and  social  subjects  promotes 
improvement.  A  widespread  (mderstanding  of  economic  prin- 
ciples, of  the  l>road  facts  of  social  stratification,  of  the  singular 
position  of  the  privileged  few,  of  the  public  loss  from  useless 
lives,  of  the  fallaciousness  and  emptiness  of  the  talk  now  com- 
mon on  so<ial  subjects  among  the  well-to-do,  —  such  knowl- 
e<lge  may  do  something  to  spur  th(>  fortunate  to  lead  lives  of 
service.  Certain  it  i.s  that  the  opinions  of  most  persons,  and 
especially  of  those  imbued  with  some  sense  of  social  obligation, 
will  be  affected  by  the  immediate  and  visible  contributions 
which  the  member-^  of  th(>  leisure  class  may  make  to  the  general 

good. 

§7.  Such  is  the  analysis  of  the  foundations  on  which  tlie 
institution  of  property  rests.  It  applies  to  the  sound  core  <.f 
the  system,  by  no  means  to  all  the  excre-»cences.  The  history 
of  modern  capitidisin  telN  a  mixed  story,  —not  only  of  vi^or 
and  competition  and  firogress,  but  of  monopoly,  exploitaii.m. 
unean\ed  inccmies  and  unearned  iiicremeiit-i.  Tlie  justiliiainiv 
account  ju>it  given  would  l>e  a  fairly  aecurati"  ilexcripti""  ol 
what  lias  aetuall\  taken  plaee  in  very  few  eominiinill'-.  if  in 
aiiv  :  such,  po-^-iMv,  wa«  New  llngland  to  the  miiMli  of  the 
Illlletrenth  centMrv  .  Tlie  uroMH-  of  the  pa-^t,  perpetuated  by 
the  in-titulion  of  inheritance,  weinh  lu'avily  on  alino>t   all  of 


! 


n 


256 


THE  DISTRIBUTION  OF  WEALTH 


11 


the  modern  world.  The  maintenance  of  things  as  they  stand 
is  dependent  in  very  great  degree  oa  the  i)rincii)lc  of  vested 
interests,  —  the  repeated  sales  and  transfers  of  properties  and 
rights,  and  the  impossihility  of  |)robing  far  into  the  past.  As 
with  land  and  urban  sites,"  so  it  is  with  almost  all  property. 
The  community  has  maintaineil  for  centuries  the  unqualified 
right  of  property ;  it  has  encouraged  men  to  buy  and  sell  on 
that  basis,  to  invest  and  to  shift  investments,  to  commit  them- 
selves irrevocably.     It  cannot  upr(X)t  the  past 

The  future  can  be  prepared  for  in  Ix'tter  ways.  The  institu- 
tion of  property  can  be  refined,  and  the  discordances  of  the 
past  can  be  prevented  from  recurring.  The  chapters  that  fol- 
low will  consider  the  possible  ways  of  limiting  antl  regulating 
the  regime  of  property.  In  various  directions  the  working  of 
capitalism  n«'etls  to  be  modified  ;  and  the  problems  thus  arising 
are  by  far  the  most  important  that  confront  society. 

None  the  less,  for  a  long  time  to  conic,  a.s  far  in  the  future  as 
we  can  foresee  with  any  approach  to  certainty,  the  es.sentiaU 
of  private  property  will  remain;  and  therewith  inequality. 
Tiic  trend  of  the  time  is  leveling.  Property,  privilege,  the 
leisure  cla.ss,  are  on  the  defensive.  Mitigation  of  existing  dis- 
crepancies and  of  «xtreme  differences  underlies  the  regulative* 
and  constructive  legislation  of  our  day.  But  there  is  no  pro.s- 
pect  that  we  shall  be  al)Ie  to  disp«'n.se  with  individual  interest, 
individual  ownership,  individual  accumulation.  All  these  are 
indispensable  for  vigor  of  production  and  for  progress;  and 
they  spell  ine(|uality.  The  main  features  of  the  existing  dis- 
tribution of  wi-altli  are  likely  to  persist  for  an  indcfiaite  period 
in  the  futurr;  -liorii.  indeed,  at  either  end,  of  llie  cxtretnes  of 
abject  povtrtN  aii<l  "ihII.ss  riches,  but  still  with  rich  and  p(M)r, 
leisure  class  ai\il  \\(  ll-io-du  cliiss  and  working  class,  social 
stratification  and  th.  Icivm  of  social  ambition.  A  ta|)ering 
social  structure  will  i.Miu;  persist. 

'  f -..liiiMi,  Hunk  V,  ("hapUT  «,  I  4. 


INEQUALITY  AND   ITS  CAUSES 


257 


References  on  Book  V 

On  the  theory  of  distribution  in  Kt-ncral,  as  on  that  of  value,  the 
first  book  to  lu)  iiifutioned  is  A.  Marshall,  I'riiiriplis  of  Economirx, 
Hooks  I\',  \',  VI  (dtii  ed.,  I'.HO).  A  compact  and  able  lla-orctic 
analysis  is  in  T.  X.  ('ar%er,  Thv  Di.stribulion  of  Winllh  (1!KM).  V.n- 
(ircly  dilTorciit  in  method,  with  a  woallh  of  historical  and  statistical 
analysis,  and  l:ir;,'c-miniU»d  trtsatnu-nt  of  the  underlying  so<ial  prob- 
lems, is  (!.  Sdituollcr,  (IrundriK!  ihr  Volkxwirtiirhiift.thlm,  IJooks  III, 
IV  (1<.)(K)1 !»()!;    French  translation,  190,"i  UMKS). 

Among  the  many  modern  books  on  capital  and  interest,  Hidim- 
Hawerk,  f'osiiirc  Tlicori/  of  (\\\)\lid  (Kniilish  translation,  IS'.ti),  has 
most  profoundly  inlluenced  recent  economic  thou^'ht.  A  revised 
edition  of  the  (ierman  is  in  process  of  publication,  the  first  part  bav- 
in!? appeared  in  liHK).  Not  inferior  to  this  in  intellectual  incisiveness, 
but  marked,  like  it,  by  some  t^xr-ess  of  refinement  and  subtlety,  are 
I.  Fisher's  two  volumes,  Thi-  Suture  of  Capitnl  ond  Inromv  (P.MMi),  and 
Th,  linU'  of  liitinst  11007).  J.  B.  Clark,  Thr  Dislrihulion  of  W, tilth 
(iSOlt),  sets  forth  a  tneory  o.  wajjes  and  interest  as  the  specific  prod- 
ucts of  labor  and  capital;  I  lind  mysi>lf  unable  to  ac.cpl  the  reason- 
ing, but  to  some  economists  it  seems  conclusive.  The  view  that  there 
is  no  essential  dilTerence  between  interest  and  rent  {see  Chapter  Ki) 
is  maintained  not  only  by  I.  Fisher  and  .1.  11.  Clirk,  l>ut  by  F.  Fetter, 
Princiiilis  of  F.conomic^  (HUM  >.  .\n  al>le  liook  by  a  French  thinker  is 
A.  Landry.   l.'intfr,y  du  ni/iilnl  (I'.XU). 

On  urban  site  rent,  interesting  descriptive  matter  is  in  R.  M.  Hurd, 
Prinriidii  of  Cilij  Lmid  \'idni.i  d'.IO.'}). 

,1.  Homir,  Miilthii.M  (lss.">i,  gives  an  excellent  account  of  Malthus'n 
writings  and  of  the  earlier  iM)ntroversy  about  his  doi'trines.  A.  I)u- 
mont,  l)fiMi»diilion  il  nriliiiihon  (ISOIH.  not  a  book  of  the  first  rank, 
states  the  modern  French  view,  laying  stress  on  "social  capillarity' 
as  explaining  the  de.  line  in  tli-'  birth  rate,  and  enlarging  on  the  desir- 
ability of  an  increasing  population.  K.  Levasseur,  l.n  I'oiiidiitu'n 
fraiiiiiinr  (IS',»2).  Vol.  III.  F^irt  I,  gives  a  go)  I  sutntnary  statement  cm 
the  inen«ase  of  population  eomimred  with  the  growth  of  wealth.  (■ 
Mayr,  Stalistik  mid  <!<  t,  Ihrhnftthhri  :  \'ol.  II,  Hiroll.innKjsiilnli.-ld 
(|S'.»7).  Vol.  Ml.  I'.irt  I,  Monilsinlixlik  ( HMO),  gives  u  ni'.ilcj  sumni.'uv 
of  statistical  data  and  a  Judicial  statement  on  questions  of  principli 

Not  withstanding  the  enormous  nniss  of  literature  on  social  sirniili- 
enlion,  there  is  no  mie  book  that  treats  this  topic  in  a  manni'r  thoroughly 
Batisfu4'lory.     C.  Ovorber|{,  La  clatse  sorutti:  (llMJo),  niuy  bu  consulted. 


vol,.  II 


BOOK  VI 
PROBLEMS  OF  LABOR 


MlCtOCOPt   RISOIUTION   TIST   CHART 

(ANSI  and  ISO  TEST  CHART  No   2) 


lb 


1^ 

140 


L25  i  1.4 


U  1^     1 2.5 
1^  1^    12.2 

12.0 
1.8 

1.6 


A 


/IPPLIED  IM/1GE     Inc 

•^^^  \<.l<^•'   U.J,-   \\f9\ 


i 


CHAPTER  55 


Trade-Unions 


§  1.  The  subjects  to  be  taken  up  in  this  Book  and  in  that 
to  follow  differ  in  important  respects  from  those  of  the  preced- 
ing Books.  They  call  in  less  degree  for  mere  description  and 
analysis,  in  greater  degree  for  a  judgment  as  to  the  value  of 
existing  institutions  and  for  advice  as  to  reform.  Hence  the 
conclusions  depend,  more  than  with  previous  matters,  on  a 
weighing  of  pros  and  eons.  Many  of  the  doctrines  laid  down 
hitherto  have  been  definite  and  positive.  They  aie  either  true 
or  not  true.  Such,  for  examj)!*',  is  the  ca.se  with  tlu>  principles 
of  exchange,  of  internatioiud  trade,  of  the  value  of  money  and 
the  range  of  prices,  of  rent  and  interest  and  wages.  No  doubt, 
questions  of  policy  have  also  been  considered,  and  necessarily 
have  led  to  some  balancing  of  conflicting  considerations ;  as,  for 
example,  with  regard  to  banking  legislation  or  the  circum- 
stances under  which  jirotective  duties  may  be  advantageous. 
But  such  balancing  is  peculiarly  necessary  for  tlie  social  ques- 
tions which  are  now  to  lie  taken  up.  With  respect  to  almost 
all  of  them,  something  is  to  l)e  said  on  l)()lh  sides;  in  favor  of 
one  course  of  action  as  well  as  in  favor  of  an  opposite  course. 
No  law  can  be  laid  down  on  them,  and  no  conclusion  provetl 
by  irrefragalile  reasoning  or  convini-ing  testimony.  Almost 
invarialtly  then'  will  be  room  for  s<»me  dilTerence  of  opinion. 
Of  this  there  is  ample  evidence  in  the  wide  divergences  of  con- 
chisioiis,  and  in  the  l)itter  controversies,  on  prol)lenis  where 
the  facts  are  undisputed. 

Again,  the  i'(»nchif4ions  reached  on  such  questions  iw  im- 
inensely  influeinMil  hy  the  point  of  view.  It  makes  all  the 
dilTerence  whether  the  problems  are  approMched  in  a  spirit  of 

-Mil 


i. 


i! 


^Lt^e]f,ii'm^-x"-^  :^i^:^']»^ 


262 


PROBLEMS  OF   LABOR 


'M 


sympathy  or  of  indiffercntism.  A  Rrcat  deal  depends  on  the 
wariulh  of  one's  social  feelings.  Now,  some  men  are  born  with 
a  spirit  of  fi-rvid  altruism,  some  with  but  the  slenderest  strain 
of  a  moral  sens{\  Between  persons  of  widely  differing  tempera- 
ments there  is  little  common  premise  for  argument.  There  is 
no  convincing  a  person  whose  whole  point  of  view  is  different 
from  your  own.  Lariiely,  no  doubt,  the  pervading  moral 
atmosphere  tells.  Mo>t  well-to-do  persons,  though  by  no  means 
selfish  or  indifferent,  are  aiTect(!il  by  their  class  feeling,  and  are 
uncous-iously  disposed  to  be  antagoivistic  to  measures  look- 
ing toward  eciualization  of  (opportunities  and  possessions.  It  is 
truL'  that  th(>y  are  not  so  critical  and  antagonistic  as  they  were 
fifty  or  a  huudreil  years  ago;  for  the  Zeitgeisl  is  becoming 
kinder,  more  reformatory,  more  widely  sympathetic.  None 
the  less,  an  underlying  opposition  to  schemes  for  social  equaliza- 
tion appears  among  the  possessing  classes,  and  not  least  among 
the  business  men  wlio  now  give  tlie  lone  t(»  these  clas.se;..  t)u 
the  other  hand,  the  representatives  of  (he  less  ftrosperous  strata 
of  .society  are  instinctively  in  an  attitude  of  opposition.  Most 
things  in  the  existing  order  of  property  and  competition  arc 
repugnant  to  them,  regardless  of  (lie  benelicial  effect.'^  and 
the  inevitable  concomitants  of  that  order.  Here,  again,  ia  a 
cause  of  differences  in  opinion  not  to  hv.  reconciled. 

Jn  this  Hook  labor  problems  will  be  dealt  with  ;  in  the  next, 
problems  of  public  control  and  the  reorganization  of  industry. 
IJolh  .sets  of  problems  center  about  the  inequalities  of  wealth 
and  the  wa\s  of  mitigating  them.  1  sluiH  try  to  consider 
these  knolty  matters  as  nbj(ctively  as  possible,  not  uiumbu(>d 
witli  the  spirit  <.f  .-oei.il  syiupatli,\,  \v\  constrained  to  face  the 
limitations  ini|,o>ei|  by  men's  rooted  luil.ils  ami  traditions,  by 
the  defects  of  govermnenlal  inaehinery,  m;)st  of  all  by  tho 
Weakness   !ind   -ordidness  of  Ihiman  nature. 

§  2.  The  trade-mnon  nioveinent  is  modern.  It  is  mainly  a 
conse(iueiice  of  |li(.  inilu.^lria'  revoluiion,  -of  the  factory 
i-yr-.;e!ii  jiii;.  !  ue  rntiiiiiirat  iiiii  oi  iiiilii-,!  rv.       Pile  number  of  per- 

Hotw  employed  in  a  single  enter|)ri.se  and  under  u  single  em- 


e-r'  .  ^^  TTOWAiy-  '&I  J»l  .'< 


TRADE-UNIONS 


263 


ployer  has  tended  to  become  largvT  and  larger.  Hence  personal 
ties  between  employer  and  employee  have  relaxed  or  disap- 
peared, and  bargaining  has  become  more  impersonal  and  cold- 
blooded. At  the  same  time  concerted  acticjn  l)y  employees  has 
become  easier.  Combined  with  this  economic  tendency  has 
been  the  growth  of  deniocracy  and  oi'  the  aspirations  that  go 
with  democracy.  The  trade-uixion  mov  :  -nt  is  one  of  the 
most  important  signs  of  social  unnst  and  social  pr()u;ress.  The 
laborers  have  become  increasingly  dissatisfied  with  a  condition 
of  dependence.  They  wish  not  only  for  higher  wages,  but  for 
emancipation  from  semii)atriarclial  conditions.  They  demand 
that  wages  shall  not  iu-  sett  let  1  onci'  for  all  on  the  employer's 
offer,  but  by  a  contract  in  which  tm-ir  own  action  shall  i)lay  an 
effective  par* 

We  may  proceed  at  once  to  the  most  important  economic 
question  presented  by  trade-unions,  —  their  possible  effect  on 
wages.  On  this  subject  it  miglit  have  l)een  said  fifty  years  ago 
that  the  opinions  of  economisis  ami  of  trade-unionists  were 
far  apart;  for  many  (H'onomists  then  maintained  that  unions 
could  have  no  efTect  on  wages,  while  the  unionists  themselves 
ascribed  every  actual  rise  in  wages  to  their  own  Torts.  The 
labor  leaders  are  still  disposed  to  lay  undue  stress  on  the  etTects 
of  concerted  action;  but  a  middle  groimd  would  now  be  taken 
by  most  economists. 

It  is  certain,  and  indeed  obvious,  that  the  l)argrtining  power 
of  hired  workmen  is  strengthened  by  their  acting  in  a  body. 
Where  an  employer  deals  with  a  lnmdre(l  workmen,  he  m.'iy  be 
sai<l  to  be  humired  fold  stronger  in  his  bargaining  position  than 
a  single  workman.  The  dilTerence  to  him  whether  one  of  hi< 
men  goes  or  stays  is  only  the  dilTerence  between  KM)  and  W. 
But  to  the  workman  the  allernalive  is  betweei\  employment 
and  —  for  the  moment,  at  least  -  uuempl.tymetit.  True,  the 
workman  may  turn  eUewhere  :  ami  it  ma\  lie  contended  that, 
if  he  olTers  his  labor  at  the  market  rates.  In-  will  get  employ- 
ment from  some  one  else.  Probablv  he  will  ;  but  onlv  .after 
an  interval,  and  with  mon-  or  less  uneertai!\t\ .      Tlu'  threat  of 


i"-;i  ,i  ""'•■.««  ■Vl.-t/ 


264 


PROBLEMS  OF  LABOR 


discharge,  and  the  workman's  fear  of  losing  his  job,  are  power- 
ful weapons  in  the  employer's  hands.  Where,  however,  all  his 
workmen  present  a  demand  at  once,  and  propose  to  quit  work 
at  once,  he  is  in  a  corresponding  position.  Then  he,  too,  will 
have  to  stop,  and  for  the  moment  will  lose  his  job ;  and  he  will 
soberly  consider  whether  he  can  find  another  set  of  men  on  the 
same  terms.  If  he  offers  the  market  rate,  doubtless  he  can 
secure  another  hundred ;  but,  like  the  individual  laborer,  only 
after  an  interval,  and  with  more  or  less  uncertainty  and  tem- 
porary loss. 

The  advantage  possessed  by  the  large  employer  becomes 
clear  when  his  position  is  contrasted  with  that  of  one  hiring 
but  a  single  person,  or  very  few  persons.  The  typical  middle- 
class  householder,  with  one  or  two  servants,  needs  each  servant 
aa  much  as  the  servant  needs  him  or  her.  If  the  mistress 
gives  notice,  doubtless  the  cook  can  find  another  place  at  the 
going  rates ;  but  not  at  once  or  without  inconvenience.  If  the 
cook  gives  notice,  doubtless  the  mistress  can  find  another  at  the 
going  rates ;  but  not  at  once,  and  with  no  less  inconvenience. 
Hence  in  a  country  like  the  United  States,  where  the  number 
of  well-to-do  persons  who  demand  domestic  service  is  great 
and  growing,  and  the  numlx'r  of  those  willing  to  give  such 
service  is  limited,'  wages  are  not  only  high,  but  are  kept  at  the 
high  market  level  without  organization  among  the  sellers  of 
labor.  If  the  persons  wanting  such  service  commonly  main- 
tained ten,  twenty,  a  hundred,  domestics  apiece,  the  situation 
would  be  different.  The  single  servant  would  then  be  weak  as 
11  bargainer ;  and  though  the  general  rate  of  wng(>s  would  doubt- 
less not  be  affected,  the  probability  that  in  each  case  the 
actual  pay  would  conform  to  the  general  rate  would  be  less. 

The  usual  disadvantage  of  the  laborer  \n  bargaining  is  due 
not  only  to  the  fact  that  he  is  iinmoi)ile,  — cannot  quickly  find 
the  best  market  for  his  labor,  —but  to  his  lack  of  reserve  funds 
and  to  the  perishability  of  his  c(»mmo<lity.  In  all  these  re- 
8i>ect8  the  difference*  between  employer  and  employ(>«  is  often 
'  Cumpuro  ubovo,  Uuuk  V,  Chapter  40,  1 1. 


;  '.rf^tsr*: 


TRADE-UNIONS 


265 


i 


one  of  degree  only;  but  it  is  none  the  less  of  vital  effect  on 
their  relative  positions.  The  workman,  as  well  as  the  capi- 
talist, may  have  reserve  funds  on  which  to  fall  back  while 
waiting  and  bargaining.  But  they  are  usually  much  less  than 
those  of  the  employer,  and  in  the  case  of  most  unskilled  laborers 
are  virtually  nonexistent.  So  with  perishability.  There  is  a 
sense  in  which  the  employer  also  is  like  the  vendor  of  a  perish- 
able commodity.  Machinery  and  tools  depreciate  while  idle, 
through  the  mere  lapse  of  time  and  through  obsolescence; 
stoppage  of  production,  for  a  "going  concern,"  means  some 
definitive  loss.  But  it  is  even  more  true  of  the  laborer  that 
working  time  lost  is  irrevocably  lost.  As  to  some  sorts  of  exact- 
ing mental  labor,  a  period  of  rest  may  add  in  the  end  to  vigor 
and  efficiency ;  but  this  possibility  is  negligible  for  most  phys- 
ical labor.  If  a  man  is  out  of  work  for  a  day  or  a  week,  so 
much  of  his  earning  power  is  gom  once  for  all. 

Organization  and  concerted  action  among  workmen  enable 
them,  to  no  small  degree,  to  lessen  their  disabilities.  Trade- 
unions  con  do  much  to  mitigate  the  immolMlity  of  labor,  by 
collecting  information  as  to  the  denianil  and  by  aiding  their 
members  in  reaching  the  right  places.  Public  and  private 
agencies  act  toward  the  same  end ;  though  private  agencies, 
managed  for  profit,  are  themselves  likely  to  take  advanvage  of 
the  laborers'  weakness.  Traile-unions,  by  accumulating  funds, 
give  their  members  a  better  chanc«'  to  hold  out  in  the  process 
of  bargaining.  Most  important  of  all,  concerted  action  in 
stopping  work  makes  the  employer  feel  that  the  workmen  are 
as  needful  to  him  as  he  to  them. 

Labor  organizations  are  thus  effective  toward  securing  "fair 
wages";  that  is,  the  current  or  nmrket  rates  determined  un- 
der the  conditions  of  eomix'tidon.  They  aid  in  enabling  the 
laborers  to  get,  in  each  particular  case,  the  wages  determined 
by  the  full  competitive  demand  for  the  special  sort  of  service; 
and  they  aid  in  bringing  the  general  rate  of  wages  to  the  full 
discounted  value  of  the  product  of  labor  in  general.  Under 
the  rdgirao  of  private  property  and  competitive  industry,  this 


I 


/ 


\ 


266 


PROBLEMS   OF  LABOR 


U 


is  doubtless  all  that  unionism  can  achieve  in  raising  wages. 
But  it  is  a  great  deal.  The  current  or  fair  rate  of  wages  is  not 
determined  automatically  or  with  any  accurate  demarcation. 
It  is  always  Ihe  result  of  bargaining.  There  is  always  a 
debatable  ground,  and  a  chance  for  manoeuvring  by  both 
parties. 

§  3.  The  concrete  problems  connected  with  trade-unions 
relate  always  not  to  wages  in  g<!norul,  but  to  the  wages  of  a 
particular  group  of  workmen,  —  those  in  one  trade  or  a  group 
of  related  trades.  Such  wages  in  the  specific  case  depend  on 
the  play  of  demand  for  the  special  kind  of  service  rendered. 
Limit  the  supply  of  workmen  in  a  given  trade  or  group,  and 
the  chance  is  bettered  for  getting  higher  wages  in  that  set. 
This  is  what  the  trade-union  invariai)ly  desires  to  bring  about. 
The  most  efTective  organizations  are  tliosc  of  the  skilled  work- 
men, —  the  machinists,  bricklayers,  carpenters,  plumbers,  and 
the  like.  These  are  in  any  event  more  (ir  less  in  a  non-compet- 
ing group.  Their  semi-monopolist  ic  position,  though  threatened 
by  the  spread  of  education  and  of  the  machine  jirocesscs,  is  still 
strong,  anil  is  sought  to  i)e  maintained  by  various  devices.  The 
number  of  apprentices  is  limited.  Admission  to  the  union  is 
restricted  by  high  initiation  dues.  In  some  of  the  rougher 
trades,  brutal  violence  is  threatened  against  would-be  com- 
petitors. Trade  schools  are  opposed.  The  unionists  try  to 
maintain  themselves  in  a  favored  place  as  compared  with  the 
rest  of  th(>  laborers. 

For  this  they  are  not,  Innnimly  speaking,  to  be  blamed;  but 
they  act  against  the  general  interest.  ('a|)italists  and  '.-mployers 
are  no  less  desirous  of  siiiitting  <»Mt  competition  and  securing 
monopoly  prolils,  Hither  sort  of  combination  works  against 
the  general  good.  Thouiili  trade-unionism,  as  a  movement  for 
uplifting  the  hil>oring  cImss  at  large  and  bettering  the  bargain- 
ing conditions  for  all,  must  commaMd  symi>athy  ;  in  its  particu- 
lar injinifestatious  it  i-^  too  ol'teti  undisguisi'dly  Rolfish,  .ind  sn 
CHUs<'s  repulsion  even  among  its  warmest  friends. 

It  is  true  that  the  instances  of  monopoly  etTective  through 


TRADE-UMONS 


267 


trade-union  exclusion  arc  not  many,  and  are  tending  to  become 
less.  They  occur  chioily  in  those  occupations  where  the  handi- 
craft is  still  dominant.  Such  is  the  case,  for  exami)le,  or  was 
until  very  recently,  with  the  f^lass  blowers.  They  had  a  tight 
union,  succeeded  in  restricting  apprentices,  limited  nun-'bers, 
and  secured  for  themselves  unusually  high  wages.  As  machine 
methods  come  to  prevail  and  specialized  skill  counts  less  than 
general  training  and  intelligence,  it  becomes  more  and  more 
difficult  to  maintain  such  monopolies.  In  (his  very  trade,  new 
inventions  are  now  (11)10)  on  trial  which  promise  to  accom- 
plish by  machinery  what  could  formerly  be  done  only  by  the 
expert  glass  man  blowing  through  his  tub(>.  None  the  less, 
the  skilled  workmen  as  a  class  still  jc^ulously  guard,  though  with 
lessened  prospects  of  success,  their  privileged  position  as  against 
other  workmen. 

It  is  a  significant  fact  that  this  restrictive  attitude  has  the 
sympathy  and  approval  of  workmen  in  general.  Most  work- 
men are  instinctively  prcftectioiiists.  Not  only  do  they  fear 
unemployment  through  increase  of  comp(>tition,  but  they 
generalize  from  the  particular  case,  and  assume  that  what  is 
advantageous  to  some  laborers  must  prove  arlvantageous  if 
applied  to  all.  The  bracing  doctrine  that  every  one  should  do 
his  utmost  in  a  free  field  linds  as  liltle  spontaneous  welcome 
among  the  emjjloycd  as  among  the  employers. 

Evidently  the  dangerous  side  of  trade  unionism  here  con- 
sidered would  disappear  if  there  were  the  open  union;  that  is, 
if  all  persons  eoinpelcnt  to  do  the  work  were  admitted  freely  to 
the  union.  The  union  then  would  be  an  organization  not  for 
monojiolistie  exclusion,  but  simply  for  mutual  aid  and  for 
collective  bargaining. 

This  is  the  usual  situation  in  the  unions  of  the  unskilled  or 
partly  skilled.  There  has  been  in  recent  years  a  great  de- 
velopment of  lalior  organization  in  the  lower  ranks,  both  among 
factory  operatives  and  among  the  miscellaneous  unskilled. 
Especially  in  the  United  States  tlion'  has  been  a  wide  spread  of 
organization  according  to  mere  propinquity  of  occupation;  aa, 


268 


PROBLEMS  OF  LABOR 


) 


for  example,  among  the  motormen  of  the  street  railways,  the 
switchmen  on  railways,  the  longshoremen  ("dockers"  in  Eng- 
land), and  the  freight  handlers,  the  teamsters,  the  coal  heavers. 
These  are  occupations  needing  at  most  but  a  few  weeks  of  ex- 
perience, to  which  any  able-bodied  man  can  turn.  Anything 
like  a  monopoly  in  them  is  hopeless ;  unless,  indeed  (as  is  too 
often  attempted),  by  a  simple  policy  of  violence.  Even  violence 
cannot  serve  long  or  effectively,  for  the  good  sense  of  the  com- 
munity revolts  against  it,  and  before  long  stamps  it  out.  These 
are  therefore  in  the  long  run  necessarily  open  unions,  and  free 
from  the  reproach  of  selfish  exclusiveness.  At  the  same  time, 
they  affect  just  those  classes  of  workmen  who  are  as  individuals 
most  helpless.  Unionism  an  ong  them,  so  long  as  it  is  kept 
free  from  the  taint  of  physical  brutality,  brings  a  great  pre- 
ponderance of  gain.  No  doubt,  their  leaders  are  sometimes 
demagogues,  or  (worse)  trpitors  ready  to  accept  bribes.  During 
the  earlier  and  formative  stages  of  organization,  they  over- 
estimate the  gams  which  the  union  can  bring,  and  may  be 
turbulent.  But  on  the  whole  they  are  potent  instruments  for 
good.  They  not  only  improve  the  bargaining  position  of  their 
members,  and  raise  their  wages  so  far  as  this  factor  can  further 
the  rise ;  they  bring  also  educational  benefits.  During  the  last 
generation,  workmen  of  these  grades  in  the  United  States  have 
been  largely  foreign  born,  often  immigrants  but  lately  arrived. 
For  these  the  trade-unions  have  been  great  schools,  and  with 
all  their  narrowness  of  outlook  have  been  helpful  in  the  process 
of  uplift  and  amalgamation. 

In  the  skilled  trades,  the  policy  of  opening  the  union  is 
always  resisted  as  long  as  possible.  At  the  same  time,  many 
of  them  have  learned,  and  most  of  them  will  probably  learn, 
that  it  is  the  only  safe  policy.  Exclusion  and  limitation,  as 
means  of  forcing  wages  in  particular  trades  to  an  abnormal 
level,  bring  sooner  or  later  their  own  breakdown.  Employers 
are  put  to  their  wits'  ends  to  find  and  train  outsiders,  or  to 
develop  improveinents  which  will  make  it  possible  to  dispense 
with  the  skilled  .n(>n.     The  spread  of  education,  and  especially 


■■)aiaP,^.:-'J?'J>MP?sti575&^-  '^^ySv-CM:;*^:^ 


xrtr.  im^  ^r.'sr  t.  ^^fflK'^^s-r-^  r  ^^^fes'i*^ 


TRADE-UNIONS 


269 


of  manual  training,  combined  with  the  steady  extension  of 
machine  processes,  make  the  position  of  the  monopolistic  union 
more  and  more  precarious.  Where  trade  schools  are  estab- 
lished, —  and  notwithstanding  the  opposition  of  the  unions, 
they  are  steadily  extending,  and  will  extend  more  and  more  in 
the  future,— the  unions  find  it  to  be  their  only  wise  policy  to 
admit  into  their  ranks  the  men  so  trained.  And  even  without 
trade  schools,  unusually  high  wages  lead  a  multitude  of  em- 
ployers to  try  to  get  on  without  the  expensive  unionists,  and 
tempt  a  multitude^  of  other  workmen  to  try  their  hand  at  the 
well-paid  jobs ;  with  the  result  that  these  mutually  attracted 
parties  get  together  and  deprive  thr  union  of  its  monopoly. 
Reluctantly  and  unwillingly,  even  the  skilled  men  are  in  most 
cases  driven  to  the  policy  of  the  open  union. 

§  4.  The  most  hotly  debated  question  regarding  unionism 
concerns  the  closed  shop.  Shall  all  workmen  be  brought 
together  in  unions,  and  all  bargains  as  to  wages  arranged 
by  union  representatives?  Shall  non-union  men  be  virtually 
forced  to  join  the  organizations,  by  '  x,  shut  out  from  em- 
ployment unless  they  do  so  ?  The  alternative  is  the  open  shop, 
in  which  the  employers  deal  with  their  laborers  individually, 
or  at  least  deal  with  them  irrespective  of  their  being  members 
of  the  union. 

Evidently  th'-  rlosed  shop  is  a  powerful  weapon  in  support 
of  the  union  of  tti.  monopolistic  type.  If  the  members  not 
only  refuse  to  a      ui   ne-      niers  to  their  ranks,  but  refuse  to 

the  difficulties  of  getting  outsiders, 
ted  by  exceptionally  high  wages,  sue 

enterppi    >   the  employer  needs  a 
If     he   union  men  leave  in  a 


work  in  a  shop  "itli  t 
even  though  these  Im  t. 
very  great.     In  alnu)>- 
trained  and  coonliiiit' 
body  whenever  he  !•'■ 
another  full  coinpleim 
cult  to  master,  and  if  pt 
wages  fiffered.  it  is  at  th- 
them  in.     If  the  trade  '» 
to  secure,  the  union,  insHfifs 


lUtsider.  he  must   substitute 

1  if  the  work  is  not  very  diffi- 

. il  outsiders  are  attracted  liy  the 

t   :,  troublesome  matter  to  l)reak 

illcl    >ne  and  training  in  it  liard 

(lie  .  I'fseil  shop,  has  (lu-  situa- 


m 


1'  ■ 


■4fi^^**"MmfT:.m^' 


At-aaaspf •','.? 


270 


PROBLEMS  OF  LABOR 


tion  well  in  hand.  Only  extravagant  demands  will  lead  the 
employer  to  break  witli  them.  Ordinarily  he  will  prefer  to 
join  with  them,  pay  high  wages  to  keep  thc^m  content,  and 
reimburse  liim.self  by  high  prices  to  purchasers.  There  is  an 
obvious  limit  to  this  process,  in  the  conditions  of  demand 
among  the  purchasers;  but  if  the  union  also  limits  access  to 
its  ranks  by  restrictions  on  apprentices  and  the  like  measures, 
it  may  find  in  the  closed  shop  a  cause  —  though  in  large  part 
also  the  result  —  of  a  profitaI)le  monopoly  position. 

Suppose,  however,  that  with  the  closed  shop  there  is  the 
open  union.  This  would  remove  at  least  one  of  the  evils 
ascribable  to  the  closed  shop, —  the  creation,  or  at  least  reen- 
forcement,  of  a  monopoly.  If  all  qualified  applicants  were 
admitted  in  good  faith  to  the  union,  the  primary  effect  of  the 
closed  shop  would  be  simply  to  enforce  collective  bargaining. 
No  contracts  with  individual  workmen  would  then  be  made, 
i^.ll  bargains  on  wages  and  the  conditions  of  labor  would  be 
concluded  through  union  delegates ;  but  these  would  represent 
not  any  restricted  knot  of  workmen,  but  simply  all  who  were 
at  work  in  the  trade  or  estaijlishment. 

The  case,  so  stated,  is  prima  facie  in  favor  of  the  closed  shop. 
So  much  follows  from  what  has  been  said  of  the  gains  secured 
through  unions  l)y  laborers.  They  get  better  terms  by  bar- 
gaining in  this  way.  They  are  the  most  numerous  and  the 
most  needy  members  of  our  modern  societies  ;  what  improves 
their  condition  increases  most  surely  the  sum  of  human  welfare. 
Let  us  consider  more  closely,  liowever,  the  industrial  situa- 
tion a;  it  would  l)e  if  the  closed  shop  were  universal.  A  great 
power  would  be  in  the  hands  of  the  workmen  or  of  their  repre- 
sentatives. That  pow(>r  would  be  by  no  means  confined  to 
questions  of  rates  of  wage'^.  The  very  settlement  of  wages 
involves  many  other  tilings;  not  only  wages  and  hours,  but 
the  mode  of  payment,  penalties,  fines,  and  numberless  details 
of  ndmiriistrntjon  ami  <li;-.rip!iiif.  Wlu-rc  a  tnuir  .agreement  is 
drawn  up  between  the  reiw'sentatives  of  employers  and  em- 
ployees, it  is  never  a  simple  contract  dealing  with  wages  alone ; 


ISS^SrH. 


TRADE-UNIONS 


271 


it  covers  necessarily  a  multitude  of  matters  of  organization. 
In  any  case,  if  wo  imagine  the  closed  slioj)  to  ho  universally 
established,  one  fundamental  question  i>  s(>ttlc  I  f*-'-  the  em- 
ployer. He  has  no  alternative  as  to  whom  he  shall  '"ij,.  .y. 
It  must  be  members  of  the  union  or  no  one.  A  striiwi  then 
simply  means  complete  cessation  of  oporations,  and  a  mere 
process  of  waiting  until  one  side  or  the  other  is  worn  out.  Th's, 
indeed,  is  what  most  workmen  think  a  strike  (an  entirely 
"fair"  as  well  as  a  peaceable  one)  ought  to  be.  They  do  not 
regard  it  as  a  simple  difference  about  terms,  in  which  one  party, 
unwilling  to  accept  an  offer,  stands  aside  and  lets  the  other 
party  make  the  offer  elsowhore.  Thor  Mtfitude  —  implied 
rather  than  explicitly  stated  —  is  that  no  "outsiders"  should 
interfere,  and  that  the  places  should  be  kept  open  for  them 
unfl  they  or  the  employers  tire  of  idleness  and  finally  come 
to  terms  of  some  sort. 

The  question  whether  the  closed  shop,  with  the  open  union, 
is  to  the  advantage  of  society,  depends  on  the  use  which  the 
workmen  make  of  the  power  which  it  would  give  them.  If 
used  simply  to  strengthen  bargaining  power  and  prevent  ex- 
ploitation (in  the  narrower  sense  in  which  that  term  is  here 
applicable),  unalloyed  good  ensues  to  the  workmen.  But  if 
used  to  hamper  industry,  there  is  much  evil  also ;  and,  unfor- 
tunately, in  the  present  state  of  mind  of  workmen  and  their 
leaders,  there  is  so  much  reason  for  exi)ecting  evil  d  this  sort 
that  no  dispassionate  observer,  however  strong  his  sympathies 
with  lat)orers,  can  look  forward  to  the  universal  closed  shop 
without  grave  misgiving.  The  grounds  for  this  feeling  need 
some  further  explanation. 

§  5.  The  outcome  of  the  universal  closo<l  shop,  or,  in  other 
words,  of  universal  unionism,  can  lie  judged  from  a  considera- 
tion of  the  policies  now  followed  by  the  unions.  It  cannot, 
indeed,  be  judged  with  certainty,  since  the  conditions  would  be 
different  from  tho-r  of  p:u-ti;>!  iiMiMMJjisitinn,  P-ut  iinforf'.niateiy 
there  is  little  ground  for  (>xpeeting  that  the  men's  att'tudo  and 
temper  woulil  be  altered;    nay,  ratlier,  they  would  become 


i'i5S*SW*«5**T*£!|-^33^ilSESvV'n^":.i:i  ¥J^"^>^^IS^i'  'MEll^.:  '"«»■ 


272 


PROBLEMS  OF   LABOR 


PI- 


more  set,  and  more  obstructive  to  progress  and  general  well- 
being. 

Tlu>  inevitable  attitude  of  the  hired  workman,  as  already 
rcmarkeil,'  is  to  favor  arrangements  that  seem  to  make 
work  and  to  oppose  those  that  seem  to  lessen  work.  Every 
improvement,  every  labor-saving  device,  means  >omc  shifting 
and  readjustment,  and  hence  commonly  entails  hardship,— 
perhaps  temporary,  but  hardship,  none  the  less.  Once  settled 
in  a  job,  tlu>  workman  wishes  it  to  last. 

One  familiar  manifestation  of  this  attitude  is  the  limitation 
of  output ;  that  is,  the  limitation  of  the  amoun*  a  man  shall 
accomplish  in  a  given  time,  as,  for  example,  the  number  of 
bricks  he  shall  lay  in  a  day.  Sudi  restriction  is  often  defended 
on  the  ground  that  it  prevents  "drivinu;,"  -the  requirement 
of  excessive  stints  by  employers.  Very  likely  there  is  a  case  to 
be  made  in  favor  of  it  on  this  ground.  But  in  the  great  ma- 
jority of  instances  it  is  simply  a  mode  of  making  the  jol)  last, 
and  so  a  check  on  vigor  and  efficiency.  It  lessens  tlie  product 
of  industry.  Moreover,  it  saps  the  spirit  of  willing  and  cheerful 
activity,  and  so  contributes  still  more  to  those  factors  —  in 
any  fase  many  and  unfavorable  —  that  make  lal>or  irksome. 

So  it  is  as  regards  piecework.  The  workmen,  individually 
or  when  gutiiered  in  unicms,  oppo.se  it.  Here,  too,  the  osten- 
sible ground  of  opposition  is  often  that  piecework  leads  to 
"driving."  The  rate  of  pay  is  alleged  to  be  ba.sed  on  the 
capacity  of  some  unusually  strong  or  skilled  workman,  which  is 
then  used  by  the  employer  as  a  ground  for  urging  tlw  average 
man  to  extreme  exertion.  Beyoml  doul)t  it  happens  th.it  piece- 
work is  thus  used  as  a  device  for  getting  too  much  work,  <tr  at 
all  events  more  work  at  the  same  pay;  and  tliis  supplies  one 
instance  more  of  the  iii(li\  idual  lalxtrer's  disadvantages  in  bar- 
gaining. But.  after  .'ill,  till'  underlying  feeling  about  piecework 
is  that  it  inereases  edicieney,  arid  so  seems  to  lessen  the  amount 
of  work  to  be  done. 

Something  of  the  same  sort   appears  in  the  demand  for  a 

',S,.,     Ilnnk   V.   ChHlltll    ."ll     I  .( 


TRADE- UNIONS 


273 


I 

j 


M 


standard  rate  of  wages ;  though  in  this  case  much  more  is  to  be 
said  in  favor  of  the  trade-union  poHcy.  Strictly  speaking,  that 
poHcy  is  for  estabUshing  not  a  standard  but  a  minii^um  rate, 
less  than  which  no  member  may  accept.  In  practise,  however, 
the  minimum  rate  is  apt  to  be  the  uniform  rate.  Tlie  general 
drift  among  trade-unions  is  against  differences,  and  so  against 
any  higher  scale  of  wages  for  the  capable  and  strenuous.  This 
drift  may  be  due  partly  to  a  wi<lespread  egalitarian  feeling,  a 
vague  questioning  of  the  intrinsic  righteousness  of  that  adjust- 
ment of  reward  to  efficiency  whidi  follows  from  the  strict  indi- 
vidualistic principle.  But  largely  it  is  due  to  the  same  feeling 
that  underlies  limitation  of  output  and  opposition  to  piece  pay, 
~  a  fear  that  the  highly  j)aid  man  will  accomplish  much,  and 
so  will  leave  less  work  to  do  for  the  rest. 

On  the  other  hand,  the  unflinching  adherence  to  a  standard 
rate,  and  even  to  a  uniform  rate,  is  to  l)e  defended  on  the 
gromid  that  it  strengthens  bargaining  pow(>r.  In  the  absence 
of  a  uniform  scale,  many  an  empKtyer  will  try  to  whittle  away 
a  rate  that  is  supix),sed  to  be  established,  by  special  agreement 
made  with  (and  in  practise  perhaps  forced  ui)on)  a  particular 
workman  or  set  of  workmen.  Any  sort  (»f  iliscrimination  or 
classification,  though  ostensibly  in  favor  of  the  highly  etficient, 
gives  color  to  discrimination  against  those  wlio  are  supposed  to 
be  less  efficient,  but  who  in  fact  may  be  simply  less  able  to 
resist.  It  is  probable,  moreover,  that  the  differences  in  indi- 
vidual capacity  betwe(>n  abie-lxxlied  manual  workmen  are  not 
very  great,  and  that  the  deadening  influence  which  is  alleged  to 
be  exerted  by  the  staiuhinl-rate  policy  is,  in  practise,  no  great 
matter.  Hence  this  policy,  much  as  it  has  been  condeniiii'tl 
by  those  who  see  only  the  IkuI  sides  of  unionisTU,  has  prol'.ililv 
done  litth>  to  fetter  geiieral  efficiency,  and  lias  done  soimlliiiig 
to  aid  the  unions  to  maintain  themselves  against  cover)  ;ilt;ii'k. 

The  opposition  to  labor-saving  improvements  and  m:uliiii<ry 
rests  unmistakably  on  ihe  same  ground  as  underlies  more 
obscurely  limitation  of  output  and  opi)(»sition  to  pieciwork. 
-    luimely,  the  dread  of  uuemph)yment.     All  hired  worknu-ii 

vol,.  II         T 


I 


'»* 


274 


PROBLEMS  OF  LABOR 


(barring  perhaps  agricultural  lalx)rers  under  some  conditions) 
dread  such  improvements.  In  the  old  days,  they  rioted,  anc 
destroyed  the  hateil  competitors.  In  modern  times,  a  silent, 
stolid  resistance  is  apt  to  appear,  with  a  half-conscious  endeavor 
to  prevent  th<>  new  devic(\s  from  working  successfully.  It  is 
true  that  many  labor  leaders  and  labor  unions  have  given  up 
the  jiolicy  of  opposing  improvements  and  machines,  and  advise 
the  members  to  accept  tiiem  and  to  become  proficient  with 
them ;  but  this  is  simply  because  they  submit  to  what  experi- 
ence has  shown  to  be  in  the  long  run  inevitable.  If  the  closed 
shop  were  the  universal  rule,  no  entering  wedge  would  exist  for 
compelling  acceptance  of  the  better  methods. 

The  attitude  both  of  employers  f,nd  workmen,  as  regards 
inventions  and  imi>rovements,  is  naturally  that  of  trying  to 
appropriate,  each  party  for  itself,  th.e  whole  gain.  The  em- 
ploj'ers  try  to  hire  the  men  at  the  existing  rates  of  pay,  to  sell 
the  proilucts  for  the  existing  prices,  and  to  pocket  a  higher 
protit.  The  men  —  once  they  have  made  up  their  minds  to 
accept  the  new  ways  —  try  to  get  for  themselves  part  of  the 
gain.  Neither  party  thinks  of  the  public,  aid  each  is  apt  to 
talk  of  the  "justice"  of  having  the  benefit  go  to  one  or  the 
other.  Justice,  in  the  sense  of  promotion  of  general  well- 
being,  demands  that  tli(>  gain  sliall  go  to  the  community,  in 
the  form  of  more  abundant  pn)du<'tion  and  lower  prices; 
which,  of  course,  is  the  n'siilt  of  competition  among  the  pro- 
ducers, and  especially  among  the  employers.  If  there  is  not 
competition,  but  monopoly,  the  workmen  might  as  well  gain  as 
th"  employers.  Hut  all  exi)eriene<'  siiows  that  the  benefit  from 
improvements,  though  accniiMg  first  !is  higher  profits  to  the  inno- 
vating capitalists,  in  time  (liters  through  to  the  community.  On 
the  other  hand,  but  for  the  prospect  of  such  higher  profits  (for 
a  longer  or  shorter  iiitervjil)  employ<'r><  wotiM  have  no  in<luce- 
ment  to  work  out  the  im|)rovenients.  In  this  sense,  it  »nity  be 
said  that   the  eMi|(loyi  is,  rather  than   the  workmen,  are  "vn- 

titlttl"    tt)   thr   L;;Uii"   tif    i';:'   jJiTiiiil   tif   t  rriiiritiuii.       Htiitri!   mOfO 

simply  and  with  less  misle;tiliiig  phrase,  the  truth  is  that  tho 


TRADE-UNIONS 


275 


immediate  interests  of  the  employers  are  more  in  accord  with 
those  of  the  puhhc  than  arc  those  of  any  one  sroup  of  workmen. 
The  same  general  remarks  are  to  be  made  of  the  attitude 
of  workmen  and  unions  toward  discipline.  The  large-scale  in- 
dustries of  our  day  call  for  semi- military  organization,  —  for 
punctuality,  iirompt  obedience,  submission  to  orders.  Dis- 
cipline in  the  employers'  hands  rests  on  tlie  power  of  discharge. 
That  power  the  workman  naturally  rescMits,  —  as  naturally  as 
he  resents  machinery  that  threatens  to  deprive  him  of  work. 
The  strong  union  ten.ls  to  hamper  it,  and  the  universal  closed 
shop  would  tend  still  more  to  hamper  it.  All  depends  on  the 
character,  intelligence,  temper,  of  the  men.  But  the  dannish- 
ness  of  class,  and  the  sympathy  of  the  great  majority  of  men  in 
all  walks  of  life  for  those  who  have  l)eeti  "caught,"  make  it 
too  probal)le  that  the  needful  sternness  of  punishment  by  dis- 
charge would  be  broken  down.' 

No  doubt,  something  is  to  be  said  in  favor  of  limiting  to  some 
degree  the  employers'  right  of  discliarge.  The  humane  employer 
ahvnys  uses  it  reluctantly.  The  inhumane  or  tyrannical  or 
hot-tempered  employer  often  abuses  it.  The  workman  has  a 
right  to  be  protected  fron>  sudden  unenii'lovment  because  of 
mere  caprice,  or  ungrounded  aceu-ation,  or  trivial  breach  of 
discipline,  or  activity  on  beli;ilf  of  hi^  fellows.  The  superin- 
tenilents  a!vd  foremen  who  deal  directly  with  the  rank  ami  file 
in  large  enterprises  not  infreciuently  have  the  vices  of  the  non- 
eonunissioned  olTieer ;  sotnetinies  are  t>rutal,  sometimes  corrupt, 
scmietimes  spiteful.  An  :ii)pe:il  from  their  decision,  a  fair  hear- 
ing as  to  the  ground  of  discliarge,  is  rci^onably  demanded,  and 
is  reasonably  backed  by  a  inii.m.  In  adjiidii'ating  such  (pies- 
tioiis,  there  is  mueli  to  br  -,Mi<l  in  favor  of  li;i\  ing  iui  establi-hed 
court  (like  the  Imvu.'Ii  <oii^:ilh  <lc  itni'llionnin  s],  or  a  -settle*! 
iirr,'m'.>:ement  for  eonlerenee  with  repri'scntatives  of  the  men. 
rnfortnnately.  if  tin'  workmen  have  that  full  command  of  Itie 
hitnation  winch  the  univ.  rsil  cl<»sed  -hop  would  give,  -ome- 
thin"  more  than  a  fair  liejirinit  is  likely  to  be  deniandeil.     The 

iSnv  fcrmi  illu»lr;ili()ii.  ril.li.  Thr  Sh.l  Wnrkrr^.    \>\'-  l<»-'    !"<• 


if" 


i 


276 


PROBLEMS  OF  LABOR 


lif  :i 


power  of  discharge  would  be  not  merely  kept  within  bounds, 
but  destroyed. 

Of  the  various  objectionable  policies  of  trade  unions,  those 
which  hamper  progress  seem  to  have  had  most  effect  in  Great 
Britain,  tho.so  which  fetter  discipline  most  in  the  United  States. 
In  the  former  country,  trade  unions  have  reached  their  fullest 
il('V(>lopment,  and  collective  bargaining  is  most  widely  practised. 
In  many  British  trades,  it  no  longer  occurs  to  any  one  that 
the  individual  workman  shall  bargain  with  the  employer ;  all 
is  done  through  the  union.     But  this  growth,  in  many  ways 
gratifying,   does  seem  to  have  been   accompanied  in  Great 
Britain  by  a  check  on  progress,  chiefly  through  limitation  on 
output  and  silent  but  effective  opposition  to  labor-saving  ap- 
pliances.    The  failure  of  Great  Britain  to  maintain  her  former 
leadership  in  some  industries,  such  as  that  of  iron  and  steel 
making,  is  due  in  part  to  trade-union  policies  which  have  put  a 
brake  on  prognvss.     In  the  United  States,  this  sort  of  influence 
has  been  little  felt ;  partly,  perhaps,  because  of  the  ingrained 
habit  of  accepting  and  welcoming  improvements,  but  probably 
in  larger  part  because  unit)nism  has  hardly  ever  had  complete 
sway  in  any  industry.     A  demoralization  of  discipline  has  been 
much  more  common  in  this  country,  esi)ecially  in  railways  and 
similar  industries,  and  has  had  much  more  serious  effects. 

$  (1.  This  prolonged  discussion  leads,  so  far  as  the  closed 
shop  is  concerned,  to  a  compromise  result.  It  is  undesirable, 
with  the  present  temi)er  ati<l  int«>lligence  of  the  workmen,  that 
they  should  linvc  that  degree  of  control  which  the  universal 
closed  shop  would  give.  Yet  it  is  no  less  undesiral>le  that  th(( 
employers  should  have  that  degree  of  control  which  the  ui\i- 
vcrsal  op"H  shop  would  give.  The  situation  as  it  actuall.' 
stands  in  numy  industries  in  the  Uiilctl  States  is  not  unsatis- 
factory, partly  open  shojjs,  partly  <'losi'd  shops.  The  exist- 
ence of  the  open  sh(>ps  prevents  the  unions  from  carrying  their 
policies  to  the  point  of  harmful  restriction;  they  mu.st  face  the 
competition  of  t!',"  unfettered  e«tab!ishmentH  The  existence 
of  the  closed  shops  prevents  the  employers  from  abusing  the 


TRADE-UNIONS 


277 


advantage  which  they  have  in  dealing  with  unorganized  woric- 
men;   they  must  face  the  possibility  of  uaionization. 

It  seems  to  be  better,  however,  that  no  individual  shop 
should  be  half  open  and  half  closed,  —  employing  half  union 
men  and  half  non-union.  Employers  sometimes  take  the 
position  that  while  they  will  make  no  opposition  to  union 
membership  on  the  part  of  their  men,  they  will  not  accede  to 
the  strict  closed  shop,  which  would  compel  all  to  join  the  union 
as  a  condition  of  being  employed.  But  this  plan  of  letti  ".g  the 
men  do  as  they  please  —  join  or  not  join  —  rarely  works  well. 
So  eager  and  vehement  is  the  unionist  spirit  that  where  the 
movement  has  once  taken  hold,  there  is  constant  nagging  of 
the  non-union  men.  Their  lives,  and  the  lives  of  their  wives 
ami  children,  are  apt  to  be  made  miserable.  Better  one  thing 
or  the  other,  — either  the  closed  shop,  with  the  possibility  that 
the  employers  will  "smash  the  union"  if  it  becomes  intolerably 
restrictive;  or  the  oi)en  shop,  with  tlic  possibility  that  the 
employees  will  strike  and  unionize  if  they  are  not  dealt  with 
fairly. 

This  sort  of  compromise  conclusion  is  (viually  unwelcome  to 
both  sides.  Unionism  is  the  gosix'l  of  the  lil)or  leaders.  It  has 
the  .sympatliy  of  tlie  great  ma.ss  of  the  workmen,  whether  they 
be  unionists  or  not ;  its  universal  extension  is  their  goal.  To 
most  employers,  on  the  other  hand,  unions  and  closed  shops  are 
an  anathema,  and  in  lighting  for  the  open  shop  they  believe 
t'>(>y  are  acting  not  only  in  their  own  interests,  but  for  the 
better  social  onler.  Even  the  most  humane  and  public-spirited 
atnong  employers  couunonly  liave  this  feeling.  The  l)itter 
opposition  with  which  such  euiployers  face  the  union  move- 
ment is  no  doubt  due  in  part  to  the  mistakes  and  extrav;iu:im'es 
of  the  workmen;  exfravag.inees  i\(»t  only  in  their  etuleavDrs 
to  restrict  and  control.  I>ut  in  their  bearing  and  temper.  The 
uniim  lender,  if  he  thinks  he  has  the  situation  in  hand.  tVels 
the  itch  of  power,  and  gives  his  orders  in  terms  which  the  em- 
ployer finds  intolerable.  But  in  nu  -nail  part  the  resentment 
of  the  emi)loyer  arises  from  his  own  love  of  power.     Human 


11 

i 


mm 


'■! 


278 


PROBLEMS  OF  LABOR 


KJ 


nature  plays  its  part  on  both  sides,  often  more  than  any  close 
weighing  of  gains  and  losses.  The  generous-minded  employer, 
disposed  to  do  the  best  he  can  for  his  men,  yet  wishes  to  do  it 
in  his  own  way.  He  likes  to  have  a  patriarchal  position ;  and 
precisely  this  is  what  the  workmen  tend  more  and  more  to 
resent.  They  wish  to  be  dealt  with  as  equals,  and  to  feel  that 
they  are  in  a  position  to  command  such  treatment.  No  doubt, 
the  business  man  who  is  tactful  as  well  as  humane,  who  meets 
his  employees  as  men,  and  who  has  enough  ability  and  success 
to  be  able  to  pay  full  market  wages  without  bickering,  can  carry 
on  the  open  shop  indefinitely  without  ever  having  "trouble." 
It  is  well  that  a  good  part  of  the  conununity's  industry  should 
remain  under  the  leadership  of  men  of  this  tyi)e.  But  even 
the  I)est  of  men  are  better  when  they  know  that  it  is  politic  to 
be  good,  and  the  best  of  employers  run  the  open  shop  better 
when  they  know  that  the  dosed  sliop  is  a  possibility.  A  great 
many  enii)loyers  are  not  of  the  best  type,  and  as  re;>;iir<ls  them 
the  closed  shop  is  a  needeil  ulteruative. 

\  conunon  contention  among  eiiiphiycrs  opi)oscd  to  unionism 
is  that  they  will  dral  only  with  their  own  men,  not  with  any 
oiitsider.  In  tliis  respect  th.'V  '^eem  to  \h'  <iuite  in  the  wrong; 
or,  to  state  it  more  ean'fiilly,  the  balance  of  social  advantage 
is  against  such  a  procedure.  The  workmen  clearly  gain  l\y 
having  tin  ir  case  in  charge  of  chosen  representatives,  whether 
or  no  these  l)e  fellow  employees;  and  collective  I)argaining  and 
uniunization  up  to  this  point  surely  bring  no  olTsetting  dis- 
advantages to  society.  .'\s  to  the  immediate  employees,  there 
is  often  a  real  danger  tliat  he  wlio  presents  a  demand  or  a 
grievance  will  be  " vii'timized."  II"  will  l>i'  discharged  and 
perhaps  iilaekli-ti d  ;  very  likely  on  some  pretext,  but  in  fact 
because  he  li;is  "maile  troulile."  Further,  tiie  ability  to  slate 
and  ai!i;ue  tiie  workmen's  case,  ,Mn<l  to  negotiate  witii  success, 
is  possessed  by  few.  No  dorbl,  it  often  h;ipi)cns  that  the 
l.il'or  re))resentatives  do  not  tluinseKrs  have  the  needed 
ul)ility  or  underytau(hng,  and  are  ii\eonvenient  persons  to  deal 
with.     Sometimes,  as  has  idready  been  remarked,  they  feel  the 


TRADE- UNIONS 


279 


itch  of  power,  and  like  to  pose  as  persons  whose  orders  must 
be  obeyed.  But  they  uie  the  best  the  men  can  find,  and  in 
the  long  run  it  is  advantageous  that  they,  rather  than  imme- 
diate employees,  should  conduct  negotiations.  The  only  case 
in  which  an  employer  is  clearly  justified,  on  grounds  of  social 
advantage,  in  refusing  to  deal  with  them,  is  where  they  are 
corrupt.  This  case,  unfortunately,  is  not  unknown,  —  when 
labor  leaders  are  willing  to  be  bribed  ;  though  the  cases  are  quite 
as  common  where  th(>  employers  are  willing  to  l)ribc.  The 
fact  that  a  labor  representative  is  found  to  be  a  blatant  dema- 
gogue, or  to  present  impossible  demands,  mi'y  be  reason  for 
promptly  closing  negotiations,  but  is  no  ground  for  refusing 
to  meet  him  if  once  he  has  been  chosen  by  the  workmen  to 
be  their  spokesman. 

§  7.  The  attitude  of  the  union  members  toward  the  "scab" 
is  the  inevitable  result  of  class  feeling  on  the  one  hand,  on 
the  other  of  that  same  specter  of  non-emi)loymcnt  which  ex- 
plains the  many  contradictions  between  the  lal)orers'  point  of 
view  and  the  strict  theory  of  the  law  of  i)rivate  property  and 
free  competition.  In  the  workingman's  eyes,  the  scab  is  not 
merely,  as  he  is  in  the  eye  of  the  law,  a  competitor  who  enters 
on  a  contract  for  wages  which  iiiiother  has  chosen  to  reject. 
He  takes  another  man  s  job  and  tleprives  that  other  of  work ; 
he  is  a  traitor  to  the  cause  of  his  class.  And  yet,  in  the  exist- 
ing industrial  organization  there  i-<  no  other  possible  way  (»f 
settling  wages  than  tliiough  competitive  offer;  tempenil, 
doubtless,  l)y  collective  bargaining,  and  also  by  humanity 
among  employers,  Init  rixed  in  the  end  through  competilicin. 
And  notwithstanding  the  pressure  of  class  feeling  against  the 
scab,  not  to  mention  lirutal  violence,  tliis  in  fact  does  settle 
wages.  A  demand  for  higher  wages  will  not  bring  them  per- 
manently, strike  or  no  strik.>,  if  plenty  of  other  men  can  Iv 
found  who  are  willing  to  do  the  work  on  the  old  terms.  In  siicli 
case  an  emi)loy<>r's  «'mbarrassment  in  getting  together  and  <h-ill- 
ing  a  new  force,  ami  the  scab's  fear  of  tnuuts  and  u  br.itmg, 
will  enable  only  u  temporary  victory  to  be  won. 


^^^i 


I  I 


280 


PROBLEMS   OF   LABOR 


n 


No  one  openly  defends  violence ;  and  it  is  probably  true,  as 
the  friendly  historians  of  the  labor  movement  say,  that  it  is  in 
the  main  a  stage  of  young  unionism,  outgrown  and  discarded 
as  organization  becomes  more  permanent  and  effective.  But 
in  the  United  States  at  least,  it  has  lasted  long  in  some  occu- 
pations, such  as  mining  and  street  railways,  and  has  remained 
(there  is  too  much  reason  to  believe)  a  deliberate  policy.  Un- 
fortunately, it  is  apt  to  be  cumulative  in  its  effects  ;  once  begun, 
it  breeds  inoro. 

When  a  strike  occurs,  especially  if  it  be  a  sudden  one  and 
intemperately  led,  the  employer  makes  the  best  show  he  can 
of  filling  the  vacant  places  at  once.    There  are  always  some 
floaters,  not  desirable  or  desired  for  permanent  retention,  who 
can  be  used  for  a  while  as  stop-gaps.    There  are  almost  always, 
in  addition,  some  really  desirable  substitutes;    for  in  rapidly 
growing  and  changing  communities  a  state  of  perfect  equilib- 
rium is  never  reached,  and  there  is  always  some  labor  (as  there 
is  some  capital)  which  has  not  found  its  place.     The  question 
whether  a  force  of  efficient  men   can   really  be'  had  by  the 
employer  at  the  old  wages  will  be  settled  only  by  experience  in 
the  long  run.     The  employer  may  find  that  he  cannot  in  fact 
secure  and  retain  good  men.     But  in  the  first  stages  of  a  struggle, 
the  long-run  factors  are  little  weighed.     The  temper  of  both 
sides  is  up,  and  the  employer,  though  conscious  that  he  is  hard 
put,  makes  a  bluff.     The  workmen  then  feel  keenly  all  their 
disadvantages  in  bargaining.     They  cannot  wait,  especially  if 
their  reserve  funds  are  scant.     The  tactical  move  of  the  em- 
ployer in  filling  the  places  with  any  one  that  comes  along  is 
met  by  the  tactical  move  of  violence  against  the  hated  com- 
petitor.    If  the  work  is  carried  on  in  the  open  and  by  scattered 
laborers,  —  as  in  the  case  of  teaming  or  railways,  —  the  like- 
lihood and  the  effect  of  violenc(>  are  .so  nmch  greater.     Then 
develops  the  curious  phenomenon  of  the  professional  strike 
hroakcr,  — the  dare  devil,  very  likely  disrcputah!.-  in  character, 
who  for  a  bonus  will  risk  liml)  and  life  in  the  first  cla.sh  with 
the  angry  strikers.     The  mere  presence  of  such  a  person  then 


mm. 


wmnm^mmm. 


TRADE-UNIONS 


281 


tempts  to  violence  so  much  the  more.     Worse  begets  worse, 
and  a  state  of  something  lilce  civil  war  is  threatened. 

The  "tie-up"  is  analogous  to  violence,  and  often  accom- 
panied by  it ;  especially  where  an  industry  of  pressing  impor- 
tance to  the  pu'.jlic  is  affected,  as  a  railway  or  street  railway. 
The  sudden  cessation  of  work,  and  the  more  or  less  disguised 
threat  of  brutality  against  a^  •  who  would  replace  the  strikers, 
amount  to  seizing  society  by  the  throat,  and  calling  on  it  to 
stand  and  deliver.  Yet  the  tactical  weakness  of  the  laborers, 
especially  as  regards  the  unskilled  or  little  skilled  among  them, 
and  the  not  infrequent  callousness  of  the  managers  of  the 
industries,  lead  too  easily  to  such  a  policy.  The  tie-ups, 
indefensible  as  they  have  been  in  themselves,  have  sometimeB 
been  the  only  means  of  forcing  a  hearing.  They  have  bred  in 
the  managing  class  a  wholesome  desire  to  conciliate  their  em- 
ployees. 

Such  concerted  and  unnotified  cessation  of  work  in  the  so- 
called  public  service  industries  has  been  made  criminally 
punishable  in  Great  Britain,  and  should  be  made  punishable 
everywhere.  But  the  law  serves  comparatively  little  to  remedy 
these  evils.  In  the  United  States  the  incredil)le  state  of  the 
machinery  of  justice  in  dealing  with  crime  no  doubt  makes  the 
law  doubly  ineffective.  But  even  if  it  were  decently  quick 
and  sure  in  action,  the  main  reliance  must  be,  as  it  nmst  always 
be  in  a  democracy,  on  the  state  of  public  opinion.  The  extent 
to  which  dissatisfied  laborers  will  go  depends  in  the  long  run 
on  their  own  state  of  mind.  Their  instinctive  sympathies  will 
almost  always  be  with  strikers.  .\{)parcntly,  it  is  only  experi- 
ence with  anarchy  which  l)rings  home  to  them  the  real  mean- 
ing of  violence  in  labor  movements.  Such,  at  least,  is  the  situa- 
tion as  regards  the  public  service  industries.  The  vmpopuliirity 
of  a  great  (^(rporatiun  in;iy  lead  for  a  while  to  a  toleration  <.f 
attacks  on  the  pul)lic  peace.  How  far  the  mass  of  men  in  ;i 
democracy  will  keep  in  the  long  run  to  th(>  ways  of  law  and 
onler  rests  on  their  convictions  and  traditions  as  regards  the 
cstablishetl  order  of  things,     If  all  the  trade-unionists  mni  all 


!•'( 


1 


282 


PROBLEMS  OF  LABOR 


! 


the  laborers  became  convinced  and  militant  socialists,  any  sort 
of  upheaval,  with  strikes  or  without  them,  would  become  a 
lever  for  the  great  struggle.  But  in  that  case  much  larger  and 
more  complex  problems  present  themselves  than  arise  from  the 
unionist  moveiaent  proper. 

§  8.  The  present  halfway  stage  in  unionism  is  not  likely  to 
persist  indefinitely.  The  movement  will  probably  grow,  and  a 
larger  autl  larger  proportion  of  hired  laborers  will  be  organized 
in  militant  associations.  So  far  as  concerns  the  unskilled  and 
little  skilled,  this  development  is  to  be  welcomed.  They  most 
need  to  be  safeguarded  against  overreaching,  and  they  most 
need  the  training  in  common  action  and  in  subordination  to  a 
common  end.  Turbulent  and  badly  officered  though  their 
unions  often  are,  the  organization  of  the  men  (and  women) 
makes  for  social  })etterment. 

As  for  the  minority  of  skilled  workmen,  the  movement  has 
so  much  that  is  narrow  and  .selfish  as  to  command  less  un- 
qualified sympathy.  The  sober-minded  well-wisher  would  be 
glad  to  see  the  ends  of  tl  >  unionists  attained,  —  higher  wa 
shorter  hours,  restriction  of  the  labor  of  women  and  childrc. 
But  he  would  have  them  reached  in  ways  which  would  benefit 
all  workers,  not  a  particular  knot  only.  Perhaps  no  better 
illustration  of  the  difference  in  attitude  can  be  found  than  with 
regard  to  the  demand  for  the  same  rates  of  wages  for  men  and 
women,  —  "equal  pay  for  equal  work."  ■  So  far  as  this  means 
that  the  artificial  barriers  in  women's  way  are  to  be  removed, 
and  that  they  are  to  have  <>qual  opportunities,  it  is  entitled  to 
full  support.  But  its  advocticy  by  the  men  organized  in  unions 
often  means,  not  that  they  wish  the  women  really  to  be  em- 
ployed at  the  same  wages,  but  that  the  women  are  to  be  em- 
ployed as  little  as  possible;  since,  on  the  whole,  they  are  less 
efficient,  and  therefore,  at  the  same  rates,  men  will  be  preferred. 
What  tlie  men  really  want  is  a  limitation  of  the  emi)loy- 
ment  to  thrinsfivis.  ."^o  it  is  as  to  rertrirtion=  on  the  labor  of 
women  and  children.     With  reference  to  both  kinds,  restriction 

'  riimimrt'  wliut  Li  miuI  in  nnuk  V,  Chiiptcr  17,  S  5). 


TR4DE-UNI0NS 


283 


'^nro  than  n- 
^  true  ti 
i.'mix  r>  I 


other, 
hy  no 

ins. 


Th.    ■ 
=.'hi 

Hi  lien 


1 
3 


is  desirable  on  large  grounds  of  social  policy.  But  the  men  who 
demand  them  often  have  a  thinly  disguised  aim  t  ecure  more 
employment  of  their  own.  By  no  means  all  lai  •  unions  or 
all  labor  loaders  are  open  to  this  criticism.  Still  ss  are  they 
consciously  selfish.  Like  all  men,  they  are  apt  to  >olicve  that 
what  is  for  their  own  advantage  is  for  the  commoi,  good  also. 
But  the  fact  remaiiis  that  the  compact  and  we.  -organized 
unions  of  the  skilled  workmen  are  entitled,  whetlu  r  in  their 
acts  or  in  their  professions,  to  but  a  divided  allegiance  from 
the  social  reformer. 

The  union  movement  now  commands 
the  fervid  support  of  the  hired  laborer 
means  a  majority  of  such  laborers  are 
But  they  wish  to  be,  or  are  disposed  i 
and  program  have  the  sjmpai'iy  of  th* 
The  movement  will  almost  certainh-  g'l  « 
than  it  now  has,  and  will  enroll  amori . 
larger  proportion  of  the  laborers.     Ai 
be  welcomed,  notwithstanding  all  tl- 
On  the  whole,  unions  arc  the  most  cfTfi  •  ivc  ih^' 
the  labt  ■■\n  theniselvt-s  turn  I  ^^  l"tteiiu 

ditiou.     'ill  I  potent  means.  .i!     .i-;t  ;  •  i 

for  securing  to  i  ucni  a  "fair"  sli:  :•      u  tli^ 
and  for  preventing  the  ine([ualiti«  vve.H'fi 

lative  in  their  effects. 

Perhaps  the  greatest  drawback  >  the  mi<  ■ 
unquestionable  gains  wliieli  orcniiizatinn  < 
lead  them  to  overlook  th<>  source  from  w  i. 
a  large  and  r .  rmanent  advance  in  wagi  1 
immediate  c(  ^tentions  always  relate  to  a  par' 
and  a  particular  set  of  laborers  leads  them 
and  almost  exchisively  of  the  meatis  for  bettering  ttie 
of  that  one  group;  ami  this  always  suggest  restrict 
limitation.  They  are  naturally  led  to  think  and  say  tliat 
higher  ret\irns  for  evervbody  can  be  secured  througti  limita- 
tion of  output  and  restriction  of  competition.     Workmen  and 


,us, 
vbai- 


nuun         cy 

■X  IlKij        ty. 

I   lien-    -ns 
u  'iiuc-h 

I  >'    1 1 ,    ! 

'  (langiT>. 

•  I  "  hich 

\v     f'on- 

ii-atie  one, 

.1  dividend, 

itis  «umu- 


K  -  T   IS  1  ,i:U  tlie 

'"'  laborers 

(•m  coin(> 

-t  :!iat  the 

,ir  rate  nt  wages 

thiidv  pi     ;;irily 

•    .ances 

II  and 


N  !! 


2g4  PROBLEMS  OF   LABOR 

employers  alike  think  of  their  special  interests  alone,  and  of  the 
ways  in  which  higher  wages  or  higher  profits  can  be  gut  m  their 
own  corner  of  the  industrial  field.     But  the  basis  for  a  rea 
gain  to  all  the  community  and  all  the  laborers  is  in  a  general 
advance  in  productive  efficiency,  bringing  a  greater  quantity 
of  tangible  output.     This  is  most  likely  to  be  secured  by  lull 
competition  among  both  capitalists  and   laborers.     Effective 
organization,  especially  if  it   be  organization  in  open  unions 
among  laborers,  is  not  inconsistent  with  free  movement  a,nd 
bracing  competition.     But,  none  the  less,  it  tends  to  deaden 
individual  activity  and  efficiency,  and  to  cause  gain  to   be 
sought  not  through  increasing  the  output,  but  through  ma- 
noeuvring for  a  greater  slice  of  the  output.     It  is  only  with 
reluctance  that  laborers  and  their  leaders  accept  labor-saving 
devices,  as  part  of  the  inevitable;  they  never  welcome  them, 
still  less  promote  thw. 


kn  i 


CHAPTER  56 


1 


Labor  Legislation  and  Labor  Hours 

§  1.  Any  established  rate  of  wages  or  other  part  of  the  labor 
contract  is  in  constant  danger  of  being  cut  down  by  grasping 
or  hard-pressed  employers ;  for  the  bargaining  weakness  of  the 
laborers  makes  it  easiest  to  turn  to  this  way  of  saving  expenses. 
Hence  arises  the  constant  effort  of  trade  unions  to  secure 
standardization  of  the  conditions  of  employment,  —  minimum 
wages,  fixed  hours,  settled  rules.  The  same  sort  of  standard- 
ization is  aimed  at  in  labor  legislation.  The  plane  of  competi- 
tion is  made  by  law  the  same  for  all.  Not  only  is  it  made  the 
same,  but  it  is  intentionally  raised.  The  enlarging  moral  sense 
of  the  community  insists  that  all  employers  shall  carry  on  their 
competitive  operations  on  a  higher  and  more  humane  level. 

The  typical  phase  of  labor  legislation  is  that  for  the  restric- 
tion of  the  employment  of  women  and  children.  The  perfect- 
ing of  machinery  and  of  automatic  devices  has  made  it  possible 
to  employ  persons  of  slender  physical  strength  in  the  most 
varied  sorts  of  industries.  All  that  needs  to  be  done  is  to  pull 
a  lever,  stop  or  start  a  machine,  tie  a  thread.  Wherever  there 
are  employers  who  see  a  profit  in  the  conduct  of  machine  opera- 
tions with  cheap  labor,  and  a  laboring  cla.ss  whose  members  are 
willing  that  their  women  and  children  should  work  in  the 
factories,  shocking  conditions  will  develop.  Children  of  tender 
age  —  but  10,  9,  8  years  old  —  are  put  to  work  in  the  mills, 
for  stretches  of  11,  12,  sometimes  13  or  11,  hours  a  day.  Tliey 
are  employed  on  night  shifts  as  well  as  day  shifts.  Women 
are  employed  not  only  for  the  same  long  hours  and  for  night 
work,  but  on  coarse  and  heavy  work  that  lirutalizes  as  well  as 
exhausts  them.  Lamentable  conditions  of  this  sort  appeared 
in  Great  Britain  in  the  early  years  of  the  nineteenth  century, 

285 


•  (] 


^ 


'^^^m^m-i^j^mwi' 


11  ■" 


280 


PROBLEMS  OF  LABOR 


as  the  machine  processes  made  their  way ;  ami  they  have  ap- 
peared ill  most  coantries  with  the  spread  of  those  processes,  — 
in  (lermanv,  Austria,  France,  Italy,  Russia.  Where  a  self- 
respecting  population  has  iefus(-d  to  suinnit  its  women  ami 
chiklrcn  to  such  degradation,  the  process<>s  and  the  methods 
of  employment  have  been  more  or  less  mo.lified,  as  in  the 
United  States  in  our  earlier  days ;  or  the  imlustries  using 
them  have  failed  to  take  root,  as  in  the  Scandinavian  countries. 
The  Kirat  inflow  of  immigrants  to  the  I'nited  States  duriiiR  the 
last  half  century  from  countries  of  low  standards  has  so  altered 
social  con.litions  that  th<-  evils  of  children's  and  women's  labor 
have  henun  to  appear  here  also  with  little  mitigation,  in  textile 
nulls,  ill  mines,  in  glass  works. 

The  machine  i)roce>s  ami  the  factory  system  ar<>  m)t  the  causes 
of  these  evils  ;  rather,  they  simply  take  advantage  of  conditions 
which  they  find.     The  fundamental  caus.s  are  poverty,  pres- 
sure for  employment,  ami  a  l<.w  standard  of  living.     In  (ireat 
Britain  the  factory  ^vstem  in  its  early  .lays  found  ready  for  its 
use  a  ma>s  of  people  demorali/.ed  l>y  a  1.;.  1  poor  law.  weakened 
by  a  long  period  of  fooil  scarcity,  cut  off  from  the  land  by  a 
feudal  >ystem  of  lan<l  ownership.     In  most  cuunlri.'s  of  Con- 
tinental   iuirope   tliere   are   MUiilar    low-lying    human   strata. 
Among  the^e  the  factory  i.lants  itself.     Uut  the  niod.Tn  system 
of  pnxluclioii,  (hough  it  does  not  create  (he  .•vil>,  concentrati-s 
them  and  makes  (hem  more  ^erl.  us;   and  no  .loulit  it  increases 
them,  by  giving  added  oi)por(unities.     The  v.-ry  fact  of  cmi- 
eentralion,  on  the  (t(her  hand,  makes  it   more  easy  to  bring 
rem.'.hiil  lorcc.  to  bcir,  such  as  factor\   icj^i^lation,  cmpulsory 
schoohii^!,    labor  oni.ini/.ation.     It    is   probaM:'   that    in   many 
easels  the  tactory  sy-^t.'m, .  vcn  in  it^.  Iu>t  stages  made  things  no 
worse  tor  the  cinpl.-ycc- ;    while  in  lh(   end  it  nuide  posMble  a 

clear  bettermenl. 

It  is  not  witlun  the  ^cop.-  of  tlii<  lu.ok  to  .onsider  the  details 
,,|-  lal.oi  legislation  Tlie  tiri  la.  tory  Act  came  in  laigland 
in  l.mrj;  the  conditions  wiiich  it  till  permitted  show  how  bad 
were  those  which  it  aimed  to  briufj  to  ua  end.     It  forixule  the 


LABOR  LEGISLATION  AND  LABOR  HOURS      287 


employment  of  children  under  nine  years  of  age  as  "appren- 
tices" in  cotton  factories,  restricted  their  time  of  lal)or  to 
twelve  actual  working  hours  i)er  day,  and  prohihited  night 
work.  This  was  the  Ijeginning  of  a  long  series  of  enactments 
extending  to  our  own  day.  The  Ten-Hour  Act  of  1847  was 
perhaps  the  most  iniportunt,  restricting  the  hours  of  labor  for 
women  and  j'oung  persons  (lii  to  18  years  old)  to  1(J  hours  a 
day,  or,  as  it  was  afterward  rearranged,  to  101  hours  on  week 
days,  and  5  hours  on  Saturdays.  The  Half-Time  .Vet  of  1844 
was  perhai)s  not  less  inii)ortant  ;  it  provided  that  eiiildrea 
(under  13  years, --i>y  later  legislation  deliue<l  as  under  14) 
should  work  but  half  the  time,  either  full  time  on  alternate 
'ays  or  half  time  on  each  day,  and  that  the  remaining  half 
should  be  given  to  school  attendan<e.  In  the  United  States, 
where  legislatitm  on  this  sul>ject  is  outside  the  con.stitutional 
powers  of  the  federal  govermnent,  the  most  important  single 
state  act  —  because  of  its  influence  as  an  examiile  and  a  model 
—  has  been  that  of  Massachusetts  in  1874,  limiting  the  hours 
of  wor!:  to  ten  fur  women  and  children.  Hoth  in  (Jreat  Britain 
and  in  the  I'nited  St;ites  the  limitation  of  hours  for  women 
and  (4iiMren  has  M'lved  in  elTeel  to  limit  lhos(<  for  men  jdso ; 
ilirectly  in  tho>e  in  lu>tri('s  where  the  men  are  employed  with 
the  women  and  cliildren,  and  indirectly  through  the  influence 
of  I  omparison  and  tradition. 

He«>tri<'tion  of  hours  has  been  by  no  means  the  only  form  of 
legilation  dealing  with  the  tiTnis  on  which  lal)or  may  be  em- 
ployed nr  the  ;uo<lc  in  wliirli  industry  may  i>e  conducted. 
(Iradually  a  complete  cmlr  lias  grown  up  in  (he  advanceil  conn- 
tries,  regul.'iling  tlie  conditions  of  cmploynient  ii\  all  sorts  of 
ways.  DantCtroUs  inai'liiner.v  must  lie  fenced;  mines  rnnst  be 
\entilated,  liuliled,  provided  with  appropriate  safeguard-^ ; 
Naiiitatioii  and  ventilation  must  be  provided  in  factories.  In- 
dii-liii's  thri'atening  to  lictlUi  an-  >peciiilly  renulated.  Thus 
the  maniifaclu'c,  impoitation.  or  -^ale,  of  matches  made  will 
white  pho-plioru-^  (which  renders  the  worker^  liaMc  to  u  kind 
of  necrosis;  js  now  prulubiled  n\  ainiosl  all  civili/ed  countries. 


h 


I'N    'ti 


2gg  PROBLEMS  OF  LABOR 

As  Great  Britain  was  historically  the  first  country  to  enter  on 
labor  legislation,  so  she  has  remained  foremost  in  ^'xtendmg 
ana  enforcins  it.     The  Factory  and  Workshop  Act  of  1901 
a  typical  and  in  nmny  ways  a  model  code,  not  only  affects  such 
matters  as  have  just  been  referred  to,  but  many  others  also,  - 
the  hours  when  work  is  to  begin  and  cease,  pauses  and  rests, 
overtime,  the  dates  and  places  of  wages  payment  (the  payment 
of  wages  In  dramshops,  for  exami)le,  is   forbidden),  the  em- 
plover's  power  to  i.npose  fines  for  negligence  or  damage,  the 
molle  in  which  pie.-ework  shall  be  computed  (rates  in  wntmg 
must  be  posted),  and  so  on  through  a  great  mass  of  detail.     In 
th.'  United  States,  the  laws  of  the  several  states  vary  greatly; 
-any  of  thent  are  lax  ;  often  they  are  ill-enforced,  whether  lax 
,.r  st'riugent.     The  backwardness  of  this  country  m  labor  U-gis- 
lation  a.id  in  its  ad.ninistration  is  .lue  partly  to  the  laisscz-fmrr. 
traditions  of  former  days,  but  even  more  to  the  fact  that  grave 
.-vils  are  of  c-omparatively  recent  dat.-.'     The  changed  social 
and  industrial  c.mditions  of  the  last  generation  or  two.  the  influx 
of  immigrants  and  the  growth  of   manufactures,  h'^       rapidly 
thrust  labor  problems  on  us  in  a  new  form  ;  and  they  nave  not 
yc>t   been   ad.-c,uately  faced.     The  jealousy  between  different 
states,  and  Ihr  fear  in  each  state  of  hampering  its  industries  in 
tl,<.   .•.'.mpctitinn    with   other   states,   are   serious   obstacles  to 
remedial    legi-^lation.     In    this    matter,    as   in   others,   the   m- 
..vitablr  persistence  of  partic.il;.rist  jealousy  raises  the  question 
wheth.r  the  constitutional  ixsvers    .f  the  fi'deri)  governni-nt 
slit.ulil  nut   be  eidargf<I. 

For  the  .IT.  liven.'s.  ..f  a  syst.Mo  of  laoo.  li'gislation,  strin- 
Urnt  ..Mloicrnunt  is  iMdispcusabl.v  Then-  must  l)e  a  staff  of 
i„spe.'loi-,  wril  trainc.i  and  wrll  M.p.'rvisrd,  ami  there  must 
hv  am|)le  prevision  for  pron^pt  penalties  on  d.lin.pients.  Kvery 
movmenf    for   m..  iai    and   industrial    reform   <l.-pen.ls   for   its 

.  I,  i.  ,n,..  .I„.t  In.M,  .  .v,.n.  vr,v  l..„„  in  |1h  M„«.|rhu|.-t.«  rntl.-M  milK 
f,„^  ,.„. 1...  I...f„r.  II,.   <  n  .1  Wnr      Mm  until  tlw  i..ll..x  of  ttw  IrW.  nft-r  IM'.. 

l^l,u\-^n..  u!iC  fm^'oh-  fur  ,.  y.^.r  or  tw..  in  ..r.lr  I ..nmlu.r -on.,-  mwinu^ 

\n.l  111.'  iMi.o  in  111.  f„.-l..r.v  piolMiMv  w>«  »\«mt  tlmu  iu  m...l.r..  Uhvh 


111 


LABOR   LEGISLATION   AND  LABOR  HOURS       281) 

success  on  good  public  officials,  and  thf  prospects  for  success  in 
any  country  are  gauged  by  the  extent  to  wiiich  it  provides 
such  officials.  In  this  respect  also,  our,  states  are  backward. 
The  new  and  complicated  problems  of  modern  industry  have 
come  upon  them  suddenly,  and  poliiical  traditions  and  political 
machinery  have  not  been  adjusted  for  deulinj?  with  them. 

§  2.  The  question  presents  itself :  why  legislate  on  all  these 
matters?  Why  cannot  tlie  same  results  be  reached  through 
the  efforts  of  the  laliorers  themselves?  Why  do  then  not 
refu.se  to  allow  women  and  children  to  work,  stii)ulatc  for 
fencing  machinery,  for  ventilating  min(>s,  and  what  not  ? 

The  answer  to  such  questioning  is  in  part  oi)vious.  Tlie 
workmen  simply  cannot  make  stipulations  as  to  the  mode  in 
which  their  work  shall  be  carried  on.  This  is  one  of  tii«'  most 
serious  consequences  of  their  weakness  in  bargaming.  The 
only  way  in  whicli  pressure  could  be  brouglit  on  employers 
toward  improving  factory  conditions  would  lu'  through  the 
process  of  the  men's  (piitting  the  daiigirous  ati<l  unsanitary  es- 
tablishments and  seekingemployment  iulhosi'lK'ttere(iuipped, 
a  process  of  no  avail,  where  all  are  e<iually  l>ad.  .Minost  uni- 
versally the  laborer  must  take  cniiditions  a^  t>e  finds  them. 
The  only  effective  way  in  whirh  the  plane  of  competition  can 
be  raised  is  l»y  the  rigiil  imposition  of  the  same  terms  on  all 
employers. 

But  it  is  not  oidy  helplessness  that  prevents  the  worknuii 
from  bestirring  themselves  in  tliese  matters.  The  need  df 
legislation  is  due  largely  to  their  own  ignorance  and  short- 
sightedness, and,  unfortunately,  their  indifference  also.  luno- 
runce  and  short siglitedness  play  the  chief  part  in  iircvciitiiig 
them  fron\  concern  about  the  dangers  of  an  ■vcui)ation.  It 
was  not  the  miners  who  ma  le  the  effort  for  compulsory  u-e  if 
the  safety  lamp,  tiut  the  men  of  s-  ienc"  and  tlic  social  reformer-. 
The  rank  and  file  of  men  are  singidtuiy  inditVerent  to  (hinger, 
or  at  least  singirlarly  >lou-  in  tid<ing  |)rcciiutions  against  danjiir. 
Whether  it  be  from  bravado,  or  recklessness,  or  simple  lack  ot 
intelligence,  the  fact  i-<  that  measures  for  iirevi  iiting  ac(  idcnts 

VIM..    II  —    C 


'I,    i 


290  PROBLEMS  OF  LABOR 

must  commonly  bo  forccl  upon  them.  So  it  is  as  to  unhealthy 
trades.  Those  engaged  in  them  sehlom  protest,  but  risk  their 
health  with  apparent  inability  to  visualize  the  inevitable  future. 
The  initiative  in  legislation  on  all  these  matters  has  eome 
mainly  from  social  reformers,  .nen  of  scienee,  physieian^. 

Social  reformers  have  al.o  l.vn  chiefly  instrunumtal  m  brmg- 
i„g  about    legislation   restricting   the   employm.Mit   of   women 
and  chilheii.     The   laboring  men   (the   women   and    chd.lren 
then.selv.s  ran-lv  are  ahle  to  make  their  misery   known,  or 
their  timid  wishes  iicard)  have  been  indifferent  or  stolid  from 
shuple  habituation  to  bad  conditi..ns.     Long  hours,  unrestricted 
emplovment   of  women  and  children,   foul  air  ami  filth    are 
concomitants  of  a  low  stamlard  of  living.     They  go  with  low 
wages  and  low  i.itelligen.H-,  a  liigh  birth  rate  and  a  high  death 
rite      To   lift    a   population    from   these   conditions   calls   for 
nirong  .-omi.ui-^ion  from  the  .uit^id.'.  not  only  on  the  employers, 
,H.t  on  tlie  laborers  al<o.     The  parents   an-   themselves   olten 
the  lirst  to  eva.le  vestri.'tious  on  the  ..mploymeut  of  .  hd.lren. 
L....i.dation  on  labor  con<litions  nmst  therefore  be  ac^onipanied 
l,v"„thcr   mca.sures.   above   all   by  edu.Mtion.     Notlung  is  so 
eifective  tovvard  cl.-ansing  and  purifying  such  a  social  marasm 
as  the  bracing  atmosphere  of  dem..cra<'y,     -a  sen>e  of  cjual 
rights  and  of  free  opiiort unity,  and  a  stir  of  social  ambition. 

Tl„.  moving  force  in  bringing  ab..ut   all  the  mass  of  labor 
re.'ulHion  and  restriction  has  been  the  great  wave  of  human 
.ympathv    which    h.is    come    over    the    civili/rd    world    durinR 
,1„,  1;,.,  ,,M,turv  ami  a  half,  and  has  so  ,.rofoundly  (ofen  un- 
,.,„wioudv)  intluenc.-d  Hie  attitude  of  all  men  .m  social  and 
,,„li,i,,,,l  pn.btems.     .\ltruism   has   widei.rd   in   its  scope;    the 
sulTcring  of  fellow  men  and  of  women  and  children  distresses 
H,  it   nevrr  did  l..r,;v.      \Vn'lcl,r  !ue      thit   was  accepted  as  a 
'„,„„,,,  ,„  ,„„,-..  ,  r.  V  centuri-  ago  i .  n -w  not  to  be  endure.l. 
\\v  \m-av  mu.'h,  it  i-  trur,  of  the  prcrrv  n  i  -n  of  the  race.     Child 
l„l.nr  legi^latioM   i^  hkcied   to  the  .•on-rvation  of  mines  an-l 
forc>ts.     t!  liv  urow  III  oj"  rhiiiucii  i^  r^tiiiiicn  r,y  prtrrsi-.'-in-  iVx  -"r, 
will  not  Ih.'  .^luif  of  llir  nation  deteriorate"     Thi>  appeal  to  a 


LABOR  LEGISLATION  AND  LABOR  HOURS       291 

half-selfish  motive,  to  the  pride  of  race  and  nationality,  no 
doubt  has  its  effect.  But  the  main  force  is  that  religion  of 
humanity  which  aims  to  make  life  happier  for  all.  It  needs 
but  to  be  made  known  that  tlier"  is  abject  squalor  and  misery 
or  joyless  children's  lives,  and  there  is  aroused  an  eager  effort 
for  betterment.  The  civilized  world  is  not  worse  than  it  has 
been;  it  is  much  b('tt(T :  ami  better  most  of  all  in  this  regard, 
that  all  human  suffering  hurts  to  tlie  ((uick,  and  more  and 
more  of  pul)lic  and  i)rivate  elfort  is  given  to  Ifsscning  it. 

§  .3.    Limitation  of  hours  of  laitor  for  men  has  stood  in  all 
countries  on  a  different  footing  fmiri  such  limilatiou  for  women 
and  children.     In  Hnglaiid  and  in  the  Tnitcd  States  no  general 
regulation  of  the   hours  of  ailult   men  has  been   undertaken. 
The  men  have  i)een  left  in  the  .uain  to  make  their  bargains  in 
this  regard  as  best  t!i(\v  could.     The  same  is  tru(>  of  <ierinany. 
In  some  other  countries  of  the  ("ontinent  a  maxinmm  working 
(lay  for  adults  has  been  fixed  i>y  law  for  all  manufactures,  as 
in  France  and  Switzerland.     I5ut  the  limit  p;rmitte(l  (12  hours 
in  France,  for  ex;vn;ple,   1!   in  Switzerland)  li;.s  i)een  so  wide 
as  to  make  the  general  legislation  of  slight  coiiseiiuence.     Par- 
ticular industries,  it  i^  t ,  ue,  have  been  sutijecteil  in  one  country 
or  another  to  more  stringent  restrii'lions  as  to  men's  hours  of 
work;    being  selected  for  special  treatment  sometinx's  liecause 
unusually  b.ad  conditions  have  come  to  light,  sometim"s  because 
the    laborers    in    tlieiH    liave    succeeded    in    bringing    effective 
|iresi||-c  to  bear  on  legislators.     The  hours  in   liakeries  ha\<' 
i)eeii  regulati'd  in  tierniany,  and  in  some  .\nierican  states.     In 
France  and  in  (Ireal    r.ritaiii   th"  hours  of  |;ilior  for  m<'n  in 
coal  mines  are  now  limited  to  n<y\\\  ;  and  in  some  of  our  Western 
slates  (Afizon.'i,  ( "olor.ado,   \evad;i,    .Missouri),   tliere  has  been 
legislation  litniting  the  houi-  iti  all  nuiii's  to  eisiht.      Hut  thc'.ie 
are  exceptions;    ii\  tlie  m;iiii  there  is  no  direct  limitation  on  the 
number  of  hours  men  mav  work.     By  far  (h'-  most   important 
restriction    is    that    which    results    from    the    !eu:i>Iatioii    as    to 
women  .ml  chil'!i(  ii.     So  far  as  men  are  em,  io\ed  in  the  same 
("staliii-imu'iils.  the  hours  lixed  tor  tiie  women  and  chiidren  are 


It  1 


!iM 


292 


PROBLEMS  OF  LABOR 


in  effect  fixed  for  the  men  also,  an(i  indeed  are  sometimes  (as 
in  France)  made  applicable  by  law  to  the  men  in  mixed  estab- 
lishments. 

In  the  United  States  the  provisions  of  the  federal  constitu- 
tion by  which  no  jKn-son  is  to  be  "deprived  of  life,  liberty,  or 
property  without  duo  prc.c.-ss  of  law,"  '  and  similar  provisions 
in  manv  stale  constitutions,  have  been  construed  to  linut  the 
powers  "of  l.^f-i^^laturos  as  regards  the  regulation  of  men's  hours 
of  labor.     "Liberty"  has  been  construed  to  include,  among 
other  things,  the  right  to  work  on  any  lerms  acceptable  to  the 
individual  a(hilt  mal.'.     Some  depn-e  of  regulation  is  indeed 
permitted   under   a   vaguely   defined    "police   power,"   whose 
exercise  is  not  deemed  inconsistent  with  liberty.      But  laws  for- 
bidding the  employment  of  men  for  more  than  ten  or  twelve 
hour.s  (and  no  such  law  can  be  eflectiv(>  if  the  workmen  are 
allowed  to  contract  out)  are  held  to  deprive  them  of  liberty  to 
work  as  they  may  please.     Laws  restricting  women's  and  chil- 
dren's labor  hav(>  not  been  held  invalid,  because  these  classes 
are  supposed  to  be  amenable  to  control  under  the  police  i)ower. 
Even  as  to  men.   some  laws  restricting  hours  in  particular 
trades,   where  grounds  of  health  are  sui)posed  to  justify  an 
ap.)licali()n  of  tliis  power  (as  in  bakeries  and  mines)  have  been 
heM  vali  I.     The  general  doctrine,  under  which  men  may  not 
be  dei)rived  of  their  "Mlx-rty"  to  work  long  hours,  results  from 
an  interpretation  of  th^  term  which  is  easily  open  to  criticism.    It 
is  proiial'le  that  the  judges  who  thus  construed  it  were  affected, 
more  or  less  consciously,  J>y  a  general  prejudice  against  the 
luboiirs'    detPands.     In   any  case  the  exact   definition    of  so 
vague  a  prin.  iplc  could  not  l)Ut  be  difficult.     The  questi.m  of 
constitutional  law  is  not   witliin'the  scope  of  a  book  like  the 
present.     Tint  the  situation  brings  into  relief  a  point  of  prin- 
ciple:   are  there  grounds,  npiirt  from  constitutional  interpre- 
tation, for  distinnuishiug  sharply  between  legislation  for  men 
and  legisliition  for  women  and  chiMren? 

iTlii><  prol.il.itiMi,  i-,  |..it  oil  C.nKirsH  \,y  H..'  Fifth  Anirndmrnt  i\nd  (whnt 
■\*  niii.li  ni.)r<'  inip'Tlnnt)  on  tin-  Miitp*  l).v  the  lourtornth  Amondmrnt. 


I 


LABOR  LEGISLATION  AND  LABOR  HOURS       293 


5 

i 


The  only  ground  for  such  a  distinction  seems  to  be  that  in 
the  long  run  it  may  lie  better  for  the  men  to  get  .shorter  hours 
by  their  own  efforts  than  V)y  legislation.  There  are  no  tenable 
objections  of  an  abstract  or  general  sort.  The  same  .social  sym- 
pathy which  leads  to  interference  in  behalf  of  the  women  and 
children  amy  lead  consistently  to  interference  in  behalf  of  the 
men.  If  it  be  tliou<;ht  intolerable  tluit  women  should  work 
more  than  ten  hours,  it  may  be  thought  no  less  intolerable  that 
men  should  work  more  than  twelve,  or  eleven,  or  ten.  The 
question  is  one  of  degree,  and  of  l)alance  of  gain  or  loss:  how 
far  the  ahruistic  inipulse  can  be  given  sway  without  ultimate 
offsetting  disadvantage. 

Something  is  to  be  said  in  support  of  the  proposition  that 
tiie  men  gain  more  in  the  end  by  fighting  their  battles  for 
theiiis(>lves.  There  is  a  bracing  (effect  in  achieving  a  thing  for 
yourself.  Labor  organization,  labor  unions,  h-  r  struggles, 
bring  social  gain  not  only  in  their  direct  effects  on  the  terms 
of  employment,  but  in  the  discipline  which  they  give.  The 
ultimate  improvenent  of  the  condition  of  tlie  mass  of  mankind 
depends  on  an  elevation  of  character  and  intcHigence.  Though 
the  relegation  of  progress  to  seir-helf)  is  oft(>n  but  a  specious 
means  of  blocking  reform,  it  remains  true  that  self-help  is  the 
nu)st  effective  kind  of  hi-lp.  On  such  grounds  the  men  may  be 
Idld  to  carry  on  for  themselves  the  struggle  for  shorter  lioiirs. 
But  this  certainly  is  no  reason  v.hy  the  state  should  not  set  a 
maximum,  as  it  docs  in  Frances  —  should  not  say  that  tliere 
are  general  limits  witliin  whicli  the  struggle  '.lUst  be  confined. 
Nor  is  it  a  reason  for  opposing  legislation  in  industries  where 
sliort  hours  are  called  for  dm  clear  grounds  of  physical  welfare. 
T  bus,  in  I'n.ssia,  lalior  in  mines  where  the  temperature  is  higher 
th.-ni  2,8°  ('.  (!»;?°  Fahrenheit)  may  not  exceed  six  ho\irs  daily. 
Such  legislation  is  analogo\is  to  that  which  coTupels  the  fencing 
of  dangerous  machinery,  tlie  proper  ven^Mation  of  workshops, 
the  (ie'ailed  regulation  of  iioisonous  trades. 

M'  The  liemand  for  -Imrtcr  ho'irs,  an  I  ("spccinlly  for  a 
g<'neral  eight-hour  »lay,  is  perhaps  the  most  imjHirtant  item  in 


\ 


11 


•f 


WM^W^-: 


.■3.c''''..'''^W.S^S 


If 


,1  • 


:i   n 


294 


PROBLEMS  OF  LABOR 


the  program  of  labor  organizations.    Apart  from  legislation, 
what  is  to  be  said  of  it  ? 

The  same  obvious  reason  which  makes  one  sympathize  with 
the  demand  for  higher  wages  makes  one  sympathize  with  that 
for  shorter  hours.     It  means  improvement  in  the  concht.on  o. 
the  mass  of  mankind.     And  it  means  improvement  at  a  most 
important  point.     Specialized  machinery  an.l  the  division  of 
labor  teml,  as  we  have  seen,  to  make  lal)or  more  monotonous 
and  irksome,  less  attractive.     T1h>  best  alleviation  of  tins  un- 
welcome but  inevitable  tendency  is  by  shortening  the  hours, 
and  increasing  the  period  of  leisure,  -  leisure  for  rest,  for  play, 
for  domestic   companionship,  for  the  development  of  higher 
faculties  ami  purer  pleasures.     The  cynical  objectors  sometimes 
.ay  that  leisure  is  in  fact  used  by  the  mass  of  laborers  for 
drunkenness  and  d<.moralizing  idleness.     But  in  fact  drunken- 
ness is  an  accompu.iiment  of  b.ng  hours,  ami  of  the  things  that 
go  with  long  hours,  -  low  wages,  bad  workshops,  degradation. 
It    is   true    that    witli    shorter   hours   there  should    be   other 
agencies  for  better  living  :  improved  education,  libraries,  play- 
grounds and  healthy  amusements,  sul>stitutos  for  the  dram 
^hop      Shorter  hours,  -  sliorter  than  are  now  traditional,  — 
can  be  made  to  bring  withour  fail  iui  overwhelming  balance  of 
gain  in  happiness. 

The  del)atable  cpiestion  concerns  the  elT.ct  of  shorter  hours 
on  wag.'s.  The  .l.'nmnd  for  thi-m  is  invarial^ly  combined  with 
a  demand  for  the  same  wages;  Irss  work,  or  at  l.ast  less  hours 
but  not  less  pay.  Are  these  combin.-<l  doman.ls  reconcdabl."  ! 
Will  not  short.T  hour-;  lessen  tlie  product  oi  l;ib«.r,  -  th-  source 
from  wliich  wages  must  come  -  an.l  so  bring  inevitably  a 
lowering  of  wages? 

Shorter  hours  do  not  necessarily  lessen  i  >  output.  Where 
work  is  done  bv  flu-  i)iece,  m.'n  may  often  a.'conii,lish  i,s  much 
in  eight  hours  as  in  ten.  l':v.-n  wh.Tc-  work  is  d:.ne,  .u.t  by  the 
pirn',  but  by  the  day  or  hour,  this  is  often  fea.il.le  ;  thou-h  such 
an  outcome  is  not  probahlr  ,;,  ii,..  ai.>r„rr  of  uw  Muuula. 
which  piecework  gives,  siu.v   ihe  looted  disi)osition  to  make 


LABOR  LEGISLATION  AND  LABOR  HOURS       295 


employment  then  operates  without  check.  Even  where  ma- 
chinery sets  the  pace,  a  reduction  in  hours  may  be  offset  by  a 
gain  in  efficiency.  Machinery  never  fixes  the  pace  quite  with- 
out regard  to  tlie  intelUgencc  ami  watchfuhiess  of  those  who 
set  it  in  motion  An  ahrt  and  wide-awake  laboring  force  may 
turn  out  as  nmcli  in  ten  hours  as  a  weary  one  in  twelve. 

But  all  this  holds  good  otdy  within  comparatively  narrow 
limits.  Piccewoi'Uers  and  skilled  mechanics  can,  perhaps,  do 
as  nmch  in  eight  hours  as  in  ten ;  but  they  cannot  do  as  much 
in  seven  hours  or  in  six.  Factory  operatives  can  often  do  as 
much  in  ten  hours  as  in  twelve ;  but  it  is  very  rare  that  they 
can  do  as  much  in  eight  as  in  ten.  The  universal  introduction 
of  the  eight-hour  day  would  mean  (other  things  unchanged)  a 
lessening  of  the  national  dividend. 

Other  things  unchanged:  but  other  things  may  change. 
Above  all,  the  progress  of  invention  and  of  the  arts  may  in- 
crease the  general  (efficiency  of  lal)or.  and  so  enable  hours  to  be 
reduced  without  lessening  the  outjiut.  This  is  what  has  hap- 
pened in  the  civilized  world  during  the  last  half  century;  this 
is  what  we  may  confidently  expect  in  th{>  years  to  come.  Tlie 
tendency  in  all  civili/.ed  countries  has  been  to  reduce  working 
time.  Factory  hours  in  I'^ugland  and  in  the  United  States 
were  11  or  12  (more  commonly  12)  until  the  middle  of  the 
nineteenth  century ;  they  are  now  usually  10  in  both  countries, 
with  a  half  holiday  on  Saturvlay  in  England.  Unfortunately, 
there  are  many  iudustiirs  in  the  Unit(<d  States  in  which  the 
hours  now  are  more  than  10,  as  in  the  textile  mills  of  the 
Soutii  and  the  iron  and  steel  industries  of  Pennsylvania;  a 
result  due  to  the  same  cause  which  has  led  to  the  abuses  of 
women's  and  children's  lal)or  in  these  regions,  —  a  lal)oring 
class  with  a  low  standard  of  living.  In  (;ermany  the  usual 
hours  were  12,  bi,  11,  even  15,  until  after  the  middle  of  the 
nineteenth  century.  They  are  now  for  the  majority  of  work- 
men !vs  Inw  as  ten,  and  in  few  cases  are  more  than  eleven. 
This  goneral  redufti;>n  m  h'-urH,  pnri  pa-^v  with  a  Rcneral 
advance  in  wages,  has  been  due  to  the  gain  in  productive 


Ml 


m 


;i- 


ih 


V- 


i 


r 


296 


PROBLEMS  OF   LAI  JO  11 


il 


i 


capacity.  John  Stuart  Mill,  in  a  much  quoted  passage  written 
in  the  middle  of  the  nineteenth  century,  declared  that  it  was 
doubtful  whether  all  the  inventions  had  diminished  the  toil 
of  a  single  human  being.  That  doubt  can  no  longer  be  ex- 
pressed;  happily  it  is  dear  that  for  multitudes  of  men  and 
women  toil  has  been  diminished. 

And  it  will  be  diminisheil  more,  and  ought  to  be  diminished 
more.     With  the  general  increase  in  the  productivity  of  labor, 
the  working  people  have  a  choice  between  several  alternatives : 
higher   wages  with  the  same   hours;    lower  wages   with  less 
hours ;   or  a  middle  course,  —  somewhat  higher  wages  and  yet 
somewhat  lower  hours.     This  middle  course  is  the  one  which 
they    have  chosen.      "Chosen"    is  a   misleading   word;    for 
obviously  there  has  been  no  conscious  or  delil)erate  choice. 
There  has  been  simply  a  vaguely  guided  steady  pressure  for 
better  conditions,  —  for  both  higher  wages  and  shorter  hours. 
The  .successful  attainment  of  both  has  been  ilue  to  continued 
struggle  and  continued  compromise,  and  at  l)ottom  to  tho.se 
very  labor-saving  devices  which  the  lal)orers  themselves  com- 
monly oppose.     The  gain  has  come  by  slight  successive  steps, 
as  almost  ;iU  industrial  changes  do,  —first  in  one  trade,  then 
another,  first  in  one  country,  then  another.     The  skilled  me- 
chanics get  short  hours  first,  for  the  same  reason  that  they  get 
higher  wages  first,  —  because  th(>  demanil  of  the  rest  of  the  com- 
munity for  this  sort  of  labor  is  high  as  compared  with  tlie 
available  sui)ply  of  it.     That  one  group  of  kiliorers,  tlius  fa- 
vorably situated,  can  secure  both  sliort  hours  and  liigli  wages, 
does  not  prove  that  all  can  do  the  same;    but  none  tlie  less  it 
is  true  that  this  aristocracy  among  the  lal)orers  has  I)een  alile 
to  wrest  its  advantages  Ix'cause  there  have  been  improvements 
both  in  the  ways  of  doing  their  special  work  and  in  those  of 
doing  the  work  of  almost  all  otlier  laborers. 

When  once  the  gcTieral  level  of  wages  has  got  above  the 
minimum  for  mere  subsistence  and  physical  e(fici(>ncy,  a  diminu- 
tion of  the  hours  of  lalior  is,  as  has  alreaily  been  said,  the  best 
form  of  higher  wages.     It  makes  not  only  for  some  It  isure  and 


LABOR  LEGISLATION  AND  LABOR  HOURS       297 


some  enjoyment  of  life,  but  for  better  intelligence  and  l;etter 
character.  The  demand  for  a  universal  eight-hour  day  is  en- 
titled to  all  sympathy  and  support.  Very  hkely  the  time  is 
not  ripe  for  it,  even  in  coniparatively  advanced  countries  like 
ths  United  States  and  England.  It  could  not  proba')ly  be 
introduced  in  all  industries  witliout  a  loss  in  output  and  so  in 
wages.  But  it  is  a  goal  which  tiie  laborers  are  right  in  keeping 
ever  before  tliciu,  and  in  jircssing  for  whenever  favorable  con- 
ditions exist.  Xo  doubt  here,  as  in  so  many  cases,  they  that 
have,  find  it  easiest  to  secure  more.  The  skilled  mechanics, 
whose  wages  are  already  high,  get  the  eight-hour  day  soonest, 
and  without  any  rechiction  in  pay.  Thosr  indu-^tries  in  which 
operations  are  continuous  night  and  day,  —  as  iron  and  steel 
works,  —  and  in  wtiicli  the  twenty-four  hours  are  often  divided 
between  two  shifts  working  twelve  hours  each,  need  the  shorter 
work  period  most  of  all.  The  only  decent  arrangement  here  is 
one  for  three  shifts,  each  working  eiglit  hours ;  an  arrangement 
common  in  the  mines  of  our  West,  and  to  be  wished  for  in  all  in- 
dustries working  continuously.  The  favored  meclianics,  selfish 
and  even  oljstructive  to  true  progress  as  they  sotnetimes  are, 
in  this  case  at  least  set  a  good  pace  and  offer  a  stinudating 
example  to  the  rest,  ^^'hell  we  survey  the  steaily  progress  in 
reducing  hours  which  has  l)een  made  in  the  last  half  century, 
and  consider  how  strongly  tlic  asjiirations  of  the  workingmen 
turn  to  this  form  of  industrial  gain,  we  may  hope  that  another 
half  century,  perhaps  another  (jiiarter  century,  will  bring  the 
widespn'ad  adoption  of  the  eight-iiour  day. 

§  5.  Where  there  are  very  low  earnings  and  the  conditions 
that  usually  accompany  low  earnings,  such  as  long  hours,  bad 
workrooms,  harsh  l)argaining  with  the  weak,  the  question  arisrs 
whether  there  may  not  be  regulation  of  the  plane  of  competi- 
tion by  fixing  iiiiniinuiii  wa,T;es  as  well  ;is  In'  r(>gt)lating  hniiis 
of  lal)or  ;uid  the  otlier  terms  of  (Mnployment. 

The  demand  for  tliis  further  form  of  labor  legislation  is 
pre.si.sied  more  especially  for  the  so-called  "sweated"  trades. 
That  term  is  loosely  used,  and  has  come  of  late  to  have  a  wider 


m 


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298  PROBLEMS  OF  LABOR 

meaning  than  when  first  applied.     Originally  it  described  a 
"oi   subcontract   and   domestic    ^'^^-tr^'  ^^J  ^^- 
parcelled  out  on  piece  teru.  and  done  at  the  horn-  of  ^1 
workers.    The  making  of  clothing  contn.ues  to  be  the  t>p  cal 
Tndustry.     Machinery  and  large-scale  production  u.  great  es  ah- 
ients,  which  have  so  completely  rovolutiom.ed  the  m^u.g 
of  textile  fabrics,  have  as  yet  been  applied  comparatively  h  t  c 
to  the  cutting  and  sewing  of  garments.     The  wholesale  deaU-r. 
Ind  th   tailofs  parcel  out  these  tasks,  especiall>'  that  of  sew.ug, 
0  subcontractors,  and  these  in  turn  parcel  them  among  me., 
women,  and  children  who  do  the  work  at  the.,  honu-s.     T  e 
Lane;  now  most  striking  in  the  United  States  ex.^m  0. 
East  Side  of  the  city  of  New  York,  where  hun<lred.  of  thoa 
sands  of  newly  arrived  inunigrants,  mostly  Russuu.  Mv.   ajc 
engage.1  by  subcontractors  in  sewing  vast  quantities  of  cloth- 
ing for  the  American  peoi)le. 

Wretched  conditions  often   appear  in  this  organization  o 
industry;    but  they  do  not  arise  from  it  by  necessity.     The 
earnings  of  the  so-called  sweated  are  by  no  means  umver.allv 
ow      They  are  so  when  very  many  compete  for  the  work  and 
an  turn  to  no  other  sort  of  work.     Such  is  the  situation  in 
some  parts  .though  not  in  -dl)  of  the  New  York  clothing  trade 
since    he  hordes  of  iievdy  aniv.d  im.m.nuits  ^--g---*  ;J 
he  language  and  of  the  country's  possibilities,  fiinl  their  com- 
patrhJdoing  this  thing,  easily  join  them  at  it,  aiul  can  turn  to 
nothing  else.     The  subcontractor  may  then    be  what    he    is 
i,,,„.,.l  in  popular  imagination,  -  a  prosperous  ami  unscru- 
pulous person  who  takes  advantage  of  the  helplessness  of  the 
Lated   and  grinds   them   to  long  hours   and  p.ffid    wag<-s 
But  quite  us  oiten  h-  is  himself  a  poor  .levd.  compe  ing  u  th 
others  no  less   poor,   an.l   unable  1o  extricate   hims.lf  .>r    us 
employees  (if  su<-h  they  can  be  eall.d)  Ironi  the  sysCni.     Tl     e 
is  much  to  be  said  in  favor  of  legislation  wlu.h  shall  pn.h 

,  ,    ^,,K.  .,,,  ,rr,-,nn--!s  !>f  h.catl!.  I>nt, 

•vork  in  tenement  houses,  nol  uwly  on  i^r.<uu-- 

for  the  better  supevvisi,)n  ami  regulation  of  labor  ...nditir- 
la  the  clothing  trade,  the  improvement  of  machinery  ..peru    . 


LABOR  LEGISLATION  AND  LABOR  HOURS       299 


in  any  case  in  this  direction ;  it  is  becoming  more  and  more 
possible  to  make  garments  with  profit  under  factory  conditions. 

But,  whethei*  in  factoric-  or  in  domestic  work,  tliere  will  be 
low  wages  wherever  there  is  a  low-lying  non-competing  group, 
and  then  there  will  be  long  hours  as  well,  unsanitary  conditions, 
overreaching  of  the  weak  and  ignorant.  People  have  come  to 
speak  of  ''sweating"  wherever  there  are  these  lamentable  con- 
ditions. And  in  all  such  cases  the  question  presents  itself, 
h>jw  far  shall  the  competitive  process  be  allowed  to  work  out 
its  results'?  May  not  the  law  set  a  miuinmm  of  wages,  below 
which  no  one  shall  emplf)y  or  be  employed?  Shall  it  not  be 
required  that  every  one  who  works  is  to  receive  at  least  a 
'living  wage"'? 

There  is  much  haziness  in  the  talk  about  a  "living"  wage. 
Those  who  use  the  phrase  do  not  mean  by  it  an  absolute 
physical  minimum.  They  have  in  mind  a  standard  of  fitordecent 
living;  and  such  standards  vary  from  age  to  age  and  from 
country  to  country.  What  is  reg  inled  as  a  living  wage  in  the 
United  State  s  is  more  than  what  would  be  so  reganled  in  f  .er- 
many  or  in  Italy.  Lil<(>  slandards  di  "just"  wages,  this  is  m 
reality  something  to  whicli  men  have  become  haljituateil,  and 
which  reflects  th(>  general  attainment  of  a  given  stage  of  well- 
being.  The  feeling  that  none  should  fall  below  such  a  "living" 
wage  rests  at  bottom  on  the  same  basis  as  most  peoi^le's  feel- 
ings in  favor  of  social  reform.  —  a  sympathetic  wish  th;it  all 
Bhould  share  in  the  gains  from  progress  within  the  bounds  that 
have  become  accepted  a!id  familiar. 

The  demand  for  leu:i-latioii  estal>lishing  a  minimum  rate  of 
rennmeration  does  not  necessarily  involve  questions  of  principle 
different  from  those  considered  in  the  preceding  sections;  and 
yet,  if  pushed  to  its  farthest  consequences,  it  might  easily  raise 
a  new  question. 

As  with  legislation  on  hours,  factory  conditions,  and  the  like, 
a  compulsory  mininunn  wages  rate  migiit  serve  simply  to  regu- 
late the  plane  of  competition.  .\11  employers  would  b(>  affected 
alike ;   no  one  could  undersell  the  otiiers  by  cutting  below  the 


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PRObL\iMS   OF   LA150R 


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ostablishcl  rato.  Thoro  would  bo  obvious  dim.ultie.  of  ad- 
.uimstration  -  atton.pt.  at  ovasiou,  to  bo  mot  only  by  a  staff 
num^tration,  i  ^,,,,„,,rt  from  public  opinion, 

of  inspoctors,  by  publicity,  b>   ^upport  non  i  ^ 

Such  dirticultios,  serious  anywhere,  would  be  espec  ally  .erious 
in  a  country  like  the  .  ^'..1  States,  whose  methods  of  legisla- 
:Lnlladminist.,..u..   -li-udo.     Hut  they  invc.ve  no 

now  (luestions  of  l  'ia  'I'l'  •„       .  f  .,n  P«<pn- 

A  more  fundam  a,  .  ,uo  nun.  yet  still  not  one  of  an  e.  en 

tiaily  novel  s,.rt,  would  i,.,  ...  v  -  aoal  with  the  uneniployablo. 
There  wouUl  unfailingly  be  a  certain  number  not  capable  of  earn- 
ing  the  minimum,  --the  aged,  feeble,  manned,  the  .hssolut.  o 
half  dissolute.  U  would  be  impossible  to  compel  employer,  o 
,r.y  the  mininuun  to  .hose  whose  services  were  not  wor  li  t. 
But  it  is  a  fair  cpios.iou  whotlier  it  is  not  a  merit  in  he  pro- 
posal rather  than  a  dofoct,  that  th.>  community  wou  d  1h>  com- 
^;;i;:;Uo  face  s..uare.y  t  he  pr...louis  .,f  decrepitude  .Id  ..^^^^^ 

tion     Among  thos-    wlm  are  inca,>ablo  of  work  or  but  half 
;  ;b.e  of  it^uo.Wsnlay  be  distinguished  :t  10..  wo  a. 

,..  plcss  from  cases  irremodiablo  for  the  individual.  >o.  not 
.,„:,,ativo  as  legards  sociCy.  such  as  old  a.o,  -  nm  y .  jl- 
abling  accUlent  ;  au.l  those  helpless  from  cans.,  that  t  nl  to 
..  cumulative,  such  .s  congenital  feebleness  o.  body  a,i. U  la  - 
.,,,,.,,  ,,,.,,,,U..,.  dissolute  living.  The  hrst  class  may  be  deaU 
.ithcharita..ly,  or  provided  for  ..y  son.  system  of  luMira.^^ 

The  second  cla.ss  should  !  o  simply  stamped  out.  Ne.tlur  t ho 
M.lenunded.  nor  those  saturated  ..alcM.ol..  tainted  w^^^ 
hereditary  disease,  nor  th  •  irretrievable  crnmnals  a.      trmip  , 

1      11.:  .llnw.Ml   tt  la. still  less  shouM  bo  allowed  to  breed. 

should  bo  alloweil  .11  iau<  ,  siiii  „i,i,..,. 

We  have  not  n-achod  the  stage  where  wo  can  ,.roceed  to  .hloro- 
form  them  ..nee  for  .11;    bu.  at  least  they  can  bo  segregated, 

Hhut  up  in  refuges  and  asylums,  and  prevented  n.,n  propagat- 
ing their  kind.  The  opinion  of  civi'.i/od  n.ankmd  .s  rap-  Iv 
„,,,i,.,  ,.,  the  con.lus.un  that  so  far  a.  h-ast  wo  may  apply  ho 
principle  .f  eugenics,  and  thus  dispose  of  what  is  the  simplest 
..(.,..,.  ..f  »h..  nniblmi  of  the  unemplnvable. 
''  But  there'is  another  aspi-et   ..f  that   problem,  -  one  th»l 


:yT/my  ^  ■^,':^:  ■  -:  ^w^m^. 


LABO      LEGISLATION   AND   LADOR   HOURS        301 


iloes  involve  a  lu'w  principle.  What  are  the  possibilities  of 
"uipioying  at  the  prescribed  wages  all  the  healthy  able-bodied 
who  apply?  The  persons  affected  by  such  legislation  would 
be  those  in  the  Icnvcst  economic  and  social  group.  The  wages  at 
which  the)' can  find  employment  depend  on  the  prices  at  which 
their  proiluct  will  sell  in  the  market ;  or  in  the  technical 
language  of  modern  economics,  on  the  marginal  utility  of  their 
s<'rvices.'  All  those  whose  additional  product  would  so  depress 
prices  that  the  miaiiiuim  could  no  longer  i»e  paid  !)}'  employers 
would  have  to  go  without  employment.  It  might  be  prac- 
ticable to  prevent  employers  from  paying  any  one  less  than 
the  minimum;  t!ioU!;!i  the  power  of  law  must  be  very  strong 
indeed,  and  very  rigi<lly  e.\ercised,  in  order  to  prevent  the 
making  of  bargains  which  are  welc(>me  to  both  bargainers. 
But  in  any  case  it  would  i>e  (piite  impracticable  to  compel 
payment  of  the  minimum  to  all  who  applied,  irrespective  of 
their  numbers. 

Rack  of  this  movement,  in  other  words,  is  the  specter  of 
Malthusianisin.  The  danger  of  |)ressure  from  uncontrolled 
increase  of  numl)ers  exists  in  modern  societies  chiefly  for  the 
lowest  stratum.  In  the  I'liited  States  it  necls  to  lie  considered 
as  regards  tli<'  new!;,  arrived  inmiigraiits  and  their  first  de- 
Kcendants."  No  legal  minimum  of  wages  can  avail  if  numl)ers 
increase  so  as  to  bring  an  i-ver  growing  cdinpetition  for  employ- 
ment. How  far  this  obstacle  would  really  stand  in  the  way 
of  minimum-wage  sciiemes  would  depenil,  as  we  have  seen, 
nuiinly  on  the  extent  to  which  the  stir  of  ambition  reached  all 
classes,  low  as  well  as  higli  '<>eedom,  education,  broadening 
of  opp(trtunity,  the  vulgn  »vell  iis  the   refined  forms  of  the 

love  of  distinction,  all  th.  Hitluences  of  democrac> —  make  it 
probal)le  that  increase  of  inmilxTs  will  not  destroy  the  possi- 
bilities of  permanent  uplift.  V<'t,  though  we  may  have  lioj)!' 
nnd  even  confidence  on  this  score,  we  cannot  be  sure  how  far 
the  forces  of  nature  may  be  curbed, 

I  S..,.  II..., K  V   Cliiel.-r  »s,  I  J. 

•  I  iiniiniri'  ItiHik  V,  <  linptiT  M,  {  - 


m 


I    * 


m^=?m 


< 


111 


3Q2  PROBLEMS  OF  LABOR 

Whether  this  fu.ukmeutal  difficulty  will  really  present  itself 
depeiKls  on  -e  .node  ia  which  minimum  wages  are  attempted 
to'be  fixed,  -whether  at  a  rate  o<,nforming  on  the  w  u^^^^^^^^^ 
„.arket  wages,  or  at  a  rate  substantially  ^^^^-^-  }^J^ 
abihties  are  that  in  this  n.atter,  as  .n  the  "-'-t-^>l>  "  ^^^^ 
.,,,  of  general  compulsory  arbitration,'  the  chvergence  fro,r 
existing  conditions  will  be  slight.  The  minimum  -ages  fixed 
Z  law  are  likely  to  l>e  vh-tually  h.  accord  w.th  conM-ft  e 
w^,..s  for  the  lowest  group.  They  will  not  modify  he  esM  n- 
.  1     ,.  ;f  u-    fhi'v  will  rather  standardize 

tials  of  the  wages  scale  as  it  is,    tlu,>    vU 
current  rates.    They  will  ain,  at  wages  which  are      ust     an 
accord  witii  a  "minimum"  standanl  of  living,  in  the  scuc  tha 
thev  will  t..nd  to  aid  and  strengthen  the  forces  that  pn-vent 
weak  bargaining  and  exploitation.     Such  at  least  has  been  the 
ca.se  in  the  much-disci.s.sed  legislation  <.f  the  Australian  colonies 
especially  Victoria,  and  very  recently  (UK).)  m  the  Minmu 
Wages  Act  of  (bvat   Britain.     It  remains  to  be  seen  whether 
this  movement.  hUe  oth.-rs  of  which  enthusiastic  people  speak 
ia  large  t.-rms,  will  be  carried  to  tlie  stage  where  it  will  <  n- 
counter  obstacles  fundamental  in  the  system  of  private  property 
and  competitive  industry. 

1   Si-c  tho  next  ohii|i(«r,  ChuptLi-  .^7,  i  0. 


m^ 


wmmm 


1 


CHAPTER  57 

SoMK  A(;i:.\(ii:s  von  iNnr.sTKi.vL  Pkace 

§  1.  Tlif  rapid  growtti  of  the  inilitnnt  movement  amouR 
laborers,  the  inereasiiiu;  tension  Itetween  t!ie  opposint?  ^roujjs 
of  employ<'rs  and  eiuplnyed,  the  los-^cs  and  ('e^tnrl)anees  from 
strikes  and  lockouts,  have  «et  i)eople  to  eon^iderinu;  ways  of 
h^sseniiiK  the  eaiiscs  nf  strife.  Anionu;  the  proposi'd  remedinl 
devices  are  profit  shaiiiiR,  welfare  arrangements,  siidinu;  scales, 
arbitration.  'l"o  the  main  featnres  of  thes;>  and  to  the  prin- 
ciples which  nnist  be  l)orne  in  mind  re'j;ardi!rj;  I'liem  we  may 
now  nive  attention. 

Profit  sli;irin'i;  is  a  device  for  liindiie.;  1<>;;ether  tlie  em|)loyer 
and  the  employees  en'4.iy;ed  in  .a  uiven  enterprise.  Trade-union- 
ism looks  to  a  hori/ontal  di\ision  :  all  the  emp!o,\ees  in  a  trade, 
scatt(>re<l  in  various  e-.talilislunents,  are  t  t  lie  united  in  common 
action  a^aiii^t  ;dl  the  employers.  Profit  sharin<;  look.s  to  .'i 
vertical  division;  the  cnployer  and  the  em|)loyees  of  the 
sln^ile  estalih^hinent  are  to  i)e  unite  I,  workim;  together  for  th" 
common  welf.ir'  of  tlieir  compact  ^rou]),  shariui^  the  ^iius  !ind 
perhaps  tlie  losses.  It  i-  couceivable  that  i);)th  xorts  of  com- 
bination, the  Iiori/onlMl  ,'ind  tlu'  verticil,  should  ko  on  >id''  liy 
side,  that  the  workmen  shoulil  l>e  united  with  all  their  fellow-^ 
for  common  action  on  xome  matters,  and  with  their  srver:d 
employers  for  common  iictioii  on  others.  Hut  in  f.ict  they 
U'Uaiiy  an'  found  incomp'itil)le.  Those  anployers  who  enter 
on  |)r(>nt  ^hariuK  are  aNer-^e  to  piirticipatiou  by  tln-ir  uoikmen 
ii.  traii< -unions,  ;ind  indeed  sonn'limes  udopt  [irolit  >-harm)i 
with  tile  desinn  of  counli-ractinii  the  urron  movement.  The 
unions,  oti  their  p;irt,  are  oppos.-d  to  prolil  shariu'X.  or  at  the 
JPRst  HiispiciouM  of   it,  bec;iuse  it  tends  to  make  the  workm.m 


Ii 


l^\ 


i 


;;«<r^^ 


•^04  PROBLEMS  OF   LABOR 

interestod    chieflv   in   the   welfare   of   his  immediate    fellow- 
emplovees,  not  in  that  of  all  workmen  of  the  trade  or  locality. 
Pr.,lit  sharinR  aims  to  distrihut<.  among  the  work.nen  some 
part   of  that  residual  share   in  distribution  which   ordinarily 
goes  /»  toto  to  the  business  man.     In  the  typical  profit-shannK 
scheme    no  endeavr  is  made  to  m(,dify  interest  or  ordunry 
wages.     Th..  usual  provision  is  that  interest  shall  be  paid  to 
capital  a.  the  curr.'Ut  rate  (say  five  or  six  pe-  cent)  and  that 
wages  shall  be  paid  to  the  workm.-n  at  thecurrem  lates.    I  sua!  y. 
too  it  is  provide.l  that  the  managers,  even  though  th-y  be  alM» 
the' owners,  shall  be  allotted  a  stated  sum  as  salary,  -  as  wages 
f.,r  that  labor  oi  management  and  superintendence  which  ob- 
viously is  part   of  the  current   work  ..f  the  ,.nterpnse.     The 
surplus  left  after  paying  all  these  shares  is  then  to  be  div.de.l 
between  emplovers  and  emph.yees.     Sometimes  half  of  it  g..es 
to  the  one,  half  to  th<>  other,  as  in  the  well-known  case  of  the 
Briggs   collieries    in  Englaml   (a  case  in  which  profit  sharing 
was  given  up  beeaus.  it  faile.l  to  prev.-nt  strikes).     Similar  m 
nrinci,,le,  but  more  favorable  to  the  workm.M,.  is  the  division 
in  the  famous  I.eclaire  house-painting  establishment  in  Pans, 
where  the  pn.i.iietors  get  one  quarter  of  the  net  surplus,  the 
workmen    three    .,u.vrters.     Sometimes,    as    with    the    Nelson 
Manufacturing  (•..mpany  of  St.  Louis,  the  .livision  .s  based  on 
the  proportion  whicli  the  f.tal  cai)it;.l  invested  bears  to  the 
total  amount  paid   out   in   v.ages  in  th.-  cours.-  oi    the  year. 
Sometimes,  ns  in  another  French  ex.ampie  no  I.-ss  noted  tlian 
Leclairr's,  that   of  the  ("...din  nietal-w.)rking  estal)!ishinenl   at 
(';uise.  tl...  .iivi>i..n  is  in  tlw  proporli<.n  which  the  total  int.'ivst 
,,,,„1  „„  ,.,,,, i,;,l  boars  to  the  total  am.Mint   p:n.l  in  wag.'s, 
..vid.ntlv  ;.n  arrang..n.-nt  much  more  fav..rabi.-  In  I!m-  w..rk- 
„„.n.     Still  .luoth-r  v.'.riant       an.l  th.-re  are  numb.-rl.-ss  varr^- 
,„,„.,  i„  a.lail       is  that   th-  s.im.-  .hvi.l-n.l  sliall  b.'  paid  ..u 

,v ,  .,    is  i.ai.l  ou  the  s1..ck  of  th.-  .-nterprise  (it  b.-ing  .-on- 

.iuHrd  un.l.r  eo!p<Tat.-..rgnnizati..n).     This  arrangement  has 
,1       .-.,-1 .-..  ,.,.;. .4  (.f  viow   that  it  irivcs 

no  o.-.as.un  I'.t  any  inspection  of  the  books,  by  way  of  eon- 


SOME  AGENCIES   FOR  INDUSTRIAL   PEACE      SO") 


I 


trolling  the  calculation  of  not  profits ;  for  the  rate  of  dividend 
on  stock  is  a  comparatively  public  matter  in  any  case.  In  all 
cases,  however,  the  partition  among  the  individual  workmen  is 
according  to  the  wages  severally  received  hy  tliem.  Each  one 
gets  a  share  based  on  the  proportion  which  Ills  wages  bear  to 
the  total  paiil  out  in  wages  to  all ;  so  that  those  wlio  are  highly 
paid  and  steadily  employed  gi  t  the  larg(>st  amounts  of  l)onus. 
Steady  employment,  to  be  sure,  is  usually  a  condition  of  any 
bonus  at  all ;  as  a  rule,  only  those  who  have  been  members  of 
a  permanent  stalT  an'  Imitted  into  the  profit-sharing  scheme. 
The  amount  which  goes  to  the  workmen  is  not  ne<'('ssarily 
paid  to  them  in  cash.  A  part  of  it,  even  <hc  uiiole  of  it,  may 
be  kept  in  the  enterprise  as  working  eajHtal,  but  credited  to  the 
workmen,  and  thereafter  entitled  to  interest  and  profits  like 
other  capital  invested ;  the  interest  ai)d  profits  being  j)aid  in 
cash,  but  the  accunmlating  bonuses  retained  as  add'.ti'His  to 
capital.  In  the  great  (lodin  concern  no  part  of  the  work- 
men's shares  in  profits  was  paiil  in  casii,  but  all  was  i)ut  into 
the  enterprise,  being  u.sed  for  l)uying  shares  in  it  ;  w'th  the 
result  that  in  process  of  time  the  workmen  themselves  became 
the  main  owners,  and  the  arrangement  becnme  one  not  so 
much  for  profit  sharing  as  for  cooperative  production.  Thu 
same  result  was  re.u'hed  eventually  in  the  Leclaire  establish- 
ment. There  only  part  of  tlu'  bonus  was  paid  in  cash,  tlie 
rest  being  t'.irned  over  to  a  workmen's  Mutual  .\i(l  Society  and 
investiMJ  in  th..  enterprise  for  tlir  benefit  of  that  Society.  In- 
directly, but  Udiii-  the  less  ctTeclually,  the  workmen  through  t!i" 
Aid  Society  have  become  tiie  main  owners;  and  vhis  arrange- 
ment too  has  l)e("  lie  one  for  cooperaiion.  In  the  XiNnu 
Company,  also,  the  workmen's  share  ut'  profits  nnist  lie  iiil  in 
the  business;  and  the  hope  and  expci'ta'ion  of  the  h<ad  of 
the  enterprise  is  that  here  also  profit  ^harlng  will  be  event u.al'y 
rei)laceii  by  cooperation.  Hut  such  an  ouleome.  tlioiiiih  anned 
at  in  som«'  of  th<'si'  conspicuo'.is  cases,  is  no  essential  part  of 
a  profit-sharing  s<'l:enie.  Cooperation  presents  diliirent  prob- 
lems;    for  it  endeuvoi's  to  get  rid  of  tlie   l)usm(ss  nnin,  not 


i 


,1! 

ill 

I 

t 


vol., 


II  —  X 


306 


PROBLEMS  OF   LABOR 


simply  to  strenstheu  tlu-  bonds  of  iuti^rcsl  between  him  and 
his  employees.'  For  the  great  majority  of  workmen,  the  most 
effective  way  in  which  proiit  sharing  can  strengthen  those 
bonds  is  to  pay  their  share  in  cash  once  for  all;  and,  except 
in  France,  this  is  the  most  common  arrangement. 

Profit  sharing  has  l)i>en  practised,  and  is  practised,  on 
a  considerable  scale  in  France.  The  habitual  thrift  of  the 
French,  ai"^  their  constant  eye  to  small  sums,  makes  it  n.ore 
attractive  to  many  workmen  there  than  it  seems  to  be  in  other 
countries ;  and  a  few  conspicuous  examples  of  success,  as  in 
the  enterprises  of  Ledaire  and  (iodin,  have  contril)Uted  to  the 
spread  of  the  movement.  In  other  countries  it  has  not  had  so 
much  vogue,  and  on  the  whole  cannot  be  said  to  be  extending 
in  any  noticeable  degree  or  to  promise  any  far-reaching  in- 
fluence on  industrial  development. 

§  2.  Proiit  sharing  was  at  one  time  proclaimed  as  a  solution 
of  the  labor  pn.bl(>m.  It  was  expected  to  be  widely  adopt<Hl 
ami  to  bring  general  industrial  peace.  Slackened  growth  of 
the  movement,  and  a  more  critical  consideration  of  its  methods, 
have  dampened  these  expectations.  Vet  there  are  still  earnest 
advocates,  who  believe  that  it  has  larg(>  i)ossil.ilities. 

The  plan  will  not  be  widely  adopted  unless  it  pays  the  em- 
ployer.  It  is  true  that  there  are  genmius-iuiiuled  (>mploy«'rs 
wlu")  will  adopt  such  a  system,  .■vui  though  it  brings  no  pecuniary 
gain.  This  has  been  the  basis  of  some  of  the  most  conspicuous 
ami  long-contiiuied  cases.  There  I  rge  enterprises  have  been 
conducle.l  by  men  of  strong  altrui.MU  as  well  as  of  high  ability, 
who  hav.-  gathered  alH)ut  tiuiu  a  stall"  of  managers  and  work- 
men iml)ued  with  the  same  s|)irit.  Infortunately  this  spirit  is 
ran-.  Were  it  .■niuninn,  the  whole  aspe.l  of  tlie  economic 
world  would  be  clumgid.  Tlie  immens.'  majority  of  business 
men,  and  of  wi>rkmen  too,  are  not  di.-posed  li>  hand  over  to 
(.thers  larger  gains  unless  they  see  smnr  advintage  therefrom 
to  themselves.  So  far  as  pn.fit  sharing  is  concerned,  the 
advantag.-,  to  bi^  rure,  i-  h-«  !>> -warily  a  dinrt  pecuniary  on«. 

'  .>Src  lioUiW.  ChiipliT  .I!!. 


J 


SOME  AGENCIES  FOR  INDUSTRIAL  PEACE      307 

Freedom  from  labor  struggles  and  strikes  has  come  to  be  of 
indirect  but  considerable  pecuniary  advantage.  Conceivably 
there  may  be  an  advertising  advantage ;  people  will  be  led  to 
make  purchases  by  preference  from  those  who  are  supposed  to 
be  generous  with  their  workmen.  But  some  gain  of  a  fairly 
calculable  sort  must  accrue  if  the  profit  sharing  plan  is  to  pre- 
vail widely. 

The  one  important  and  permanent  source  of  pecuniary  gain 
wouhl  b(!  in  greater  eflicieucy  on  the  part  of  the  individual 
workman.  Knowing  that  he  is  to  hav(!  a  share  in  the  i)rofits, 
ho  may  be  expected  to  work  more  conscientiously  and  more 
assiduously,  to  save  materials  and  to  care  for  tools.  Thus  he 
will  contribute  as  much  in  additional  output  as  he  receives  in 
bonus  ;  not  only  as  much,  but  even  more  ;  so  tliat  the  employer 
after  paying  tin;  bonus,  will  find  output  and  pres\im.ably  profits 
increased.  No  d{)ul)t  there  is  possibility  of  improvemeut  of 
this  sort.  The  ordinary  wages  plan  often  entails  waste,  from 
the  slackness  and  carelessness  of  the  workmen.  The  waste  is 
not  only  of  a  material  .sort,  but  of  a  spiritual  sort,  since  it 
deadens  th(>  interest  and  sati.sfa<'tion  from  lalior.  Any  scheme 
that  really  promised  to  eliminate  or  lessen  this  double  waste 
would  be  welcome  from  (>very  point  of  view. 

There  are  circun\stances  under  which  tiiis  welcome  result 
may  accrue.  Where  the  industry  is  considerably  and  directly 
alTected  by  the  way  in  which  the  laborers  do  tluMr  work;  where 
those  laborers  are  intelligent  enough  and  per^^istent  enough  to 
keep  to  better  ways,  even  after  the  novelty  of  the  seht>me  has 
worn  olT;  wh(>re  the  emi)loyer  steadily  gives  them  a  sub- 
stantial share  of  the  aceruing  gains,  -  there  the  conditions  are 
suiliciently  favoral>le  for  profit  siiaring.  Such  se(>ms  to  li;ive 
been  th(>  sitinition  in  1-eelaire's  house-|)ainting  enterprise. 
There  tl\e  work  wa-;  widely  sciittereil,  diHicult  of  su!)ervi>i(.ii, 
Mild  much  affected  by  the  care  :ind  >kill  of  the  individii.il  work- 
mOM  ;  the  employer  was  capable  and  warm-hearted,  eanu'd  the 
coiilidence  and  loyalty  of  his  men,  and  gatlu'reil  .-iboiit  him  a 
fltatT  above  the  average  in  intelligence  and  character. 


li 


\^ 


I  it'i 


t  -— 


308 


PROBLEMS  OF  LABOR 


In  most  industries  of  modern  times  the  conditions  are  not 
thus  favorable.     It  may  be  a  question  liow  far  deficient  intelli- 
gence and  farsightedness  in  the  average  workman  would  stand 
in  the  way,  other  things  being  propitious ;  but  other  things  are 
not  propitious.     In  the  typical  modern  enterprise,  there  is  a 
very  uncertain  connection  between  the  employee's  individual 
care  and  activity,  and  the  general  outcome  of  the  business. 
Though  he  do  his  best,  profits  may  be  wipi-d  out  by  a  turn  in  the 
market  or  by  the  employer's  bad  management.     Conversely, 
though  he  do  the  usual  humdrum  thing,  profits  may  be  high. 
This  is  the  essential  economic  weakness  of  profit  sharing.     The 
final  outcome  in  the  way  of  profits  depends  not  only  on  the 
efficiency  of  the  individual  employees,  but  on  a  nmltitudc  of 
other  factors.     To  this  must  be  added  the  circumstance  that, 
with  the  increasing  concc^ntratiou  and  standardization  of  tech- 
nical operations,  it  becomes  more  and  more  easy  to  parcel  out 
the  stints  and  to  supervise  tlu>  men.     Work  is  commonly  done 
in  factories  with  much  regularity  and  routine.     Even  where 
there  is  not  piecework,  it  is  possible  to  fix  the  normal  performance 
for  each  man.     The  power  of  discharge  is  a  more  coarse  and 
cruel  stimulant  to  ('(ficiency  than  a  bonus  fronv  eventual  profits, 
but  it  is  more  direct  and,  unfortunately  for  most  men,  more 

effective. 

To  repeat,  unusual  employers  can  achieve  unusual  results. 
The  spirit  of  t'  leader  permeates  a  business  enteri)rise,  as  it 
does  a  n.^iment  or  a  school.  ICven  industries  in  which  the 
c(mditio>is  seem  unpromising  —  where  the  connection  between 
individual  efficiency  and  eventual  profits  is  remote  —  have 
been  conducted  on  tlu-  profit  sliaritig  ])lan  with  brilliant  success 
by  able,  inspiring,  high-minded  men.  The  list  of  .'nterprises 
in  which  the  scheme  has  !)eeii  continuously  maintained  shows 
u  surprising  variety:  tliey  (••■..mot  be  said  to  have  industrial 
characteristics  in  conunoii  The  inference  is  the  stronger  that 
tlu-  personality  of  the  leaders  has  beeii  the  chief  factor.  Where 
oiic<  e><tabli.^lie(l,  the  system  lr)ng  maintains  itself,  even  after 
the  deaih  of  the  founder,  for  the  saim>  reason  that  any  business 


SOME  AGENCIES  FOR  INDUSTRIAL  PEACE      309 


organization  continues  to  run  on  when  once  it  has  got  its  im- 
petus. Probably  the  founder  has  enlisted  associates  who  are 
like  himself  in  character  and  spirit.  That  profit  sharing  will 
spread  widelj'  is  not  to  be  inferred  from  its  long  maintenance  in 
individual  instances. 

The  other  less  immeiliate  gains  to  employers  from  the  plan 
are  not  of  so  great  importance  as  the  direct  effect  on  output 
and  profits.  The  prevention  of  strikes  has  been  a  strong 
motive  with  some  employers.  But  the  fact  that  the  trade-unions 
look  on  it  askance,  and  the  growth  of  other  methods  for  linking 
the  interests  of  employer  and  employee,  ha\x'  made  it  of  diminish- 
ing promise  on  this  score.  Soir.etimes,  as  has  already  been 
noted,  an  advertising  advantage  is  supposed  to  be  secured.  A 
business  concern  turning  out  an  article  widely  used  by  the 
general  public  ingratiates  itself  by  what  is  sui)poscd  to  be 
kindly  and  generous  dealing  with  its  employees.  It  is  a  most 
commendable  form  of  advertising,  if  the  dealing  be  really  gener- 
ous and  kindly.  But  unfortunately  it  is  far  less  effective  than 
the  familiar  blatant  sort. 

The  prospects  that  profit  sharing  will  be  universally  adopted 
are  nil.  Even  the  prospect  for  wi.le  spread  is  slight.  1  r 
good  or  ill,  the  horizontal  division  between  employers  and  em- 
ployees is  becoming  sharper.  The  decay  of  semi-patriarchal 
conditions,  and  the  spnvid  of  the  trade-union  movement,  make 
against  close  vertical  association.  This  does  not  mean  tli;  "^ 
relations  are  necessarily  becoming  more  embittered,  or  that 
industrial  peace  is  harder  to  att;iin:  !)ut  tiiat  its  attainment 
will  not  be  nuich  ])roiu()l('d  by  this  particular  (h-vii-e. 

§  ',i.  Profit  sharing,  however,  is  only  one  way  of  reaching 
the  desired  results.  It  is,  as  we  have  se(>n,  not  a  very  direct 
way.  Other  devices  to  the  same  end  may  be  tried,  and  some 
of  them  seem  to  have  more  promise  of  effect  than  profit  s|lnriM'.^ 
"(!ain  sharing"  is  a  generic  phrase  often  applied  to  them. 
Piecework  pure  and  simple  is  an  obvious  case.  Sun<lry  schemes 
luive  been  de\"isrd  by  ingi-niutis  tnaiiagrrs :  jiri-miumr'  on  out- 
put per  man  or  per  group  of  men ;    bonuses  on  savings  of 


(i 


w 


iul 


M 


mwiSL  a-jsifmim. 


1^1 


310  PROBLEMS  OF  LABOR 

materials,  oil,  fuel ;  and  the  like.     Simplest  and  perhaps  most 
effective  of  all  is  several  good  tn-atment  combined  with  general 
good  discij,line.     Some  tautness  ot  organization,  some  threat  of 
punishment  through  discharge,  there  must  be,  so  long  as  men 
are  hired  bv  others  for  profit.     But  a  humane  and  farsighte.l 
policy   can   do   much   to   mitigate   the   inevital>le   drawbacks. 
P,.  .npt  pavment  of  wages  at  the  going  rates,  ready  attention 
to   complaints,   straightforward    an<l    nonpatronizing   dealing, 
wise   selection    and   supervision    of   th(>  un.lerst rappers,  well- 
equipped  workrooms,  and  good   provisions   for  comfort,  -  all 
these  are  helpful.     They  are  helpful  nu.st  of  all  when  guuled 
bv  the  right  sort  of  personality ;   for,  as  has  just  been  said,  the 
personality  of  th(>   industrial   leader   runs  through   his  entire 

establishment. 

What  are  called  "welfare"  arrangements  play  a  considerable 
part  in  the  large-scale  industries  of  our  <lay.     Such  are  schools 
and  libraries  in  connection   with  the  enterpris.'s ;    light  and 
ventilation  in  factories:  good  toilc't  rooms:    .leont  places  for 
the  midday  meal;    gardens,  ,,laygrouuds,  and    club    rooms; 
dwellings  (when  supplied  by  the  employer)  of  good  design  at 
moderate   rentals:     pen>ion   plans   and   nuitual   aid   societies, 
aided  an.l  subventioned  by  the  employer;    and  so  on  indefi- 
nitelv.     All  these  are  good,  not  as  "solutions"  of  the  funda- 
mental  problems,   but   as  mitigations  of  existing  vxiU.     The 
incre-Kin-  a.loption  of  methods  of  this  sort  is  in  i)art  but  one 
,„anil'es<ati..n  of  that  growth  of  altruisti-  leelings  which,  as  we 
have  ^een,  und.Tlies  labor  l.'gi-lation  and  tlH<  whole  movem.Mit 
for  social  reform.     In   no  small  d.^gree  it  is  .lue  also  to  pres- 
sure from  labor  uni<.ns.     The  fact  that  workmen  are  formidably 
organized  makes  it  pay  to  minimize  dis.-ontent.     Whether  due 
to  humane  spirit   or  to  cold-blood.Ml  calculati.m,  this  mode  of 
"fighting  tb,"  unions"  may  have  our  cordial  sympathy.     If  the 
competition  am.mg  einploy.-rs  and  salaried  managers  brini^s  to 
ji.j,  r,,j.p  |j.„.;,.  ,v!!o  are  not    (inly  energetic  and  eai)able,  but 
finvifthted  and  of  good  he;,rt.  so  much  the  better.     Develop- 
ment in  this  .liiTction,  at  all  events,  seems  more  likely  to  take 


SOME  AGElN'CIES  FOR  INDUSTRIAL   PEACE       311 

place  than  that  of  i)rofit  sharing;  in  the  strict  sense,  and  it 
promises  more  for  imhi-trial  peace  in  the  future. 

§  4.  An  entirely  dii'ferent  device  is  that  of  the  sliding  scale. 
By  this,  as  by  i)rolit  sharing,  an  automatic  sharing  of  gootl 
result.s  anil  of  l)iv(l  is  sought ;  but  in  a  ditfcn-ent  way.  Wages 
are  made  to  vary  with  the  price  of  the  pnxluct,  going  up  as  the 
price  rises,  declining  as  that  falls.  A  niiniinuni  rate,  l)elow 
which  wages  shall  in  no  case  fall,  is  always  set,  and  a  price  of 
the  product  is  agreed  on  corresponding  to  this  rate.  As  the 
price  rises  above  this  jjoint,  wages  also  go  up,  by  stages  agreed 
on  in  advance;  anil  as  the  i)rice  declin(»s,  wag(>s  fall,  but  only 
until  they  (perchance)  reach  the  niininunn. 

The  method  is  of  course  api)licable  only  wh(>re  a  homogeneous 
product  is  turned  out,  and  where  the  price  of  that  product  can 
be  ascertained  readily,  say  from  published  market  quotations.' 
Coal  of  uniform  (piality  (or  with  standardi/.ed  grading)  fuUiUs 
these  conditions.  Hence  we  iind  the  sliding  -cale  in  u-e  among 
the  coal  mines  both  of  South  l^ngland  and  Wales,  and  of  North 
England.  It  has  bei>n  applied  similarly  in  the  anthracite  coal 
industry  of  the  United  States,  in  earlier  times  (1870  -1S72)  and 
more  conspicuously  since  191)2,  when  it  was  put  into  effect 
after  the  great  strike  ol'  that  year.  It  has  I)eeu  applied  to  the 
iron  trade,  botli  in  the  Unitt-d  States  and  in  England,  where 
standard  kinds  of  crude  iron  are  turned  out.  A  case  in  this 
country  has  l)een  in  the  cotton  manufacture  of  Fall  River, 
where  the  jiroduct  is  ehielly  print  cloth  of  uniform  quality  and 
recorded  price.  Mere  wages  ure  made  to  go  up  and  down,  not 
according  to  the  price  of  tlie  print  cloth  itself,  l»ut  according  to 
the  "margin"  between  raw  cotton  and  cotton  cloth,  —that  is, 
according  as  the  emrent  ])rice  of  a  piece  of  cloth  exceeds  by 
more  or  by  less  the  price  of  the  raw  material  useil  in  producing  it. 

The  sliding  scale  seems  at   lir.-^t   sight    *o  !)e  out   of  accord 
with  the  general  methods  i)f  the  wages  sy4ein.     Tln'  principle 

rhcrkiiiR  l)y  iii'i'ouiitanl  ■,  from  the  ciupluycrd'   Ixioks,  of  tlw  pri'-i'S  r ivcil 

by  thorn. 


I 


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312 


PROBLEMS  OF   L ABO  11 


underlying  the  usuul  arrangement  (if  prii.  .pie  it  run  be  called) 
is  that  the  employing  business  niun  takes  the  risks  of  enter- 
pri>(",  anil  that  the  employee  does  not.  The  employee  gets 
onee  for  all  a  stipulated  sum,  which  is  independent  of  the  price 
obtained  for  the  particular  goods  sold,  as  it  is  independent  of 
the  i)rofits  of  the  ])articular  employ(T.  If  the  product  in  the 
industry  or  estal)lishmcnt  falls  in  i)rice,  the  employer  bears  the 
brunt  of  the  loss.  If  coal  or  iron  or  print  dolh  falls  in  price, 
the  presumable  conse<iuenccs  might  be  outlined  thus  :  a  ilecline 
in  the  protits  of  the  employing  capitalists,  tlien  a  reduction  in 
outpul.  then  a  trnnsfer  of  workmen  to  other  occupations,  and 
an  (Mutual  readjustment  to  the  price  normal  for  that  article; 
ijut  througli  it  all,  no  changes  of  wages  from  the  level  fi.wd  by 
the  gciK  I ;d  forces  which  determine  wages. 

Bui  this  very  statement  of  the  presumai>le  or  "theoretical" 

consc.iuences  of  tlie  u>ual  wages  arrangement   indicites  why 

The  sliding  scale  may  commend  itself  both  to  emi)loyers  and  to 

workmen.     Thes.'    couseciuenct's   are   conditioned   on   Tuobility 

of  labor  and  capital.     For  considerable  periods  tliere  is  little 

mol)ility  ;    and  those  engaged  in  an  industry  often  tliink  there 

i<  le-s  f!ian  in  fact  exists.     When  there  are  lower  i)rices  and 

lower  profits,  the  decliue  in  output,  though  it  comes,  is  carried 

out  -lowly  ami  reluctantly.     A  shift  of  worknuni  away  from  the 

indu>lry  takes  place   no  less  slowly  and  reluctantly.     Hence 

ci  >pl"ycrs  ;uul  <-mployees  are  in   a   sort    of  '/<  fncto  i)roduct 

-harnig  -ituaiion.     Both  are  for  the  time  being  settled  in  the 

\i-nng  ■■mi>!Myment,  and  between  them  can  get  out  of  it  only 

\h  !   t'      ..utput  of  the  industry  in  gross  makes  possilile.     It 

-     nil     11;.!  a  proli  iiije  1  pi'riod  of  high  prii'cs  and  high  wages 

=?iMv-  tract  c.ipitid  and  lalior  into  tlw  industry,  and  so  to 

:rrssi   -ii.  !i  a  lower  range  of  returns  ;  while  conversely  a  period 

*     -A    ?-iC.-  ,1  d  low  wages  has  the  opposite  eiTect.     But  these 

-jjT-r-.-r    oii-eiiiiences  are  conunoniy  disregarded  by  "practical" 

jf-joi,      U>    tiiey  rarely  look  beyond  the  i^reseiit  and  the  very 

•j-ar      tur-       Only  a  small  number  of  farsighted  l)usiness  men 

uii,.j  _  few  .■eunomic -.tudents  give  thought  to  eventual  results. 


}^^^'f;m^;r^*m 


s 


SOME   AGENCIES  FOR  INDUSTRIAL   PEACE       313 

Most  persons  think  of  the  hiliorers  and  the  cmploj'ers  in  a  ?iven 
industry  as  committed  to  it  once  for  all.  Friction  is  avo'ded 
and  the  continuous  conduct  of  operations  promoted  if  there 
is  agreement  in  advance  that  both  wages  and  profits  shall 
fluetuute,  in  some  degree  at  least,  with  the  price  of  product. 

§  5.  Still  another  device  for  preventing  strife  is  arbitration. 
Why  not  refer  disputed  questions  as  to  wages  and  terms  of 
l.djor  to  an  impartial  judge,  and  abide  1)y  his  decision? 

Arbitration  may  lie  private  or  public.  If  private,  it  may 
be  sporadic -- provided  for  the  particular  exigency;  or  per- 
manent, through  boards  or  judges  arranged  for  in  advance. 
If  pulilic,  it  niiiv  be  witli  jiowers  of  recommendation  only,  or 
with  jjowers  of  comi)ul^ion.  The  most  widesprearl  forms  of 
arbitration  are  tho.sc  private  arrangements  which  are  perma- 
nently established  and  those  public  boards  whose  powers  are  for 
reconunendation  only.  And  these  two.  again,  though  different 
in  origin  and  in  formal  position,  work  in  jiractise  much  in  the 
same  way  and  with  the  same  degree  of  rfncacy. 

Disputes  concerning  wages,  hours,  and  'ither  matters  very 
rari'ly  involve  any  large  question  of  principle,  or  ny  attempt 
at  far-reaching  disturbance  of  existing  conditions.  They  turn 
on  w;>^(  s  a  few  per  cent  higher  or  lower,  hours  a  little  longer 
or  shorter.  By  "fair"  wages  most  people  mean  the  current 
market  rate,  or  that  rate  which  would  obtain  if  competition 
worked  out  all  i(s  results  smoothly  and  promptly.  When 
employer  ;nid  i;iipIoye(>s  dispute  as  to  what  is  "fair,"  they  are 
commonly  not  v(>ry  far  apart  ;  and  conunonly  each  side  would 
lose  less  (certainly  for  the  immediate  future)  by  accepting  the 
terms  offered  fr..m  th(>  other  si<le  than  by  a  strike  or  lockout. 
The  frequent  outcome  is  to  split  the  dilTerence,  often  no  grcit 
difference;  and  this  is  nuich  eased  if  the  whole  di-jiute  be  re- 
ferred to  an  impartial  arliilmtor  or  board  of  arbitration. 

Not  only  is  there  usuallv  a  tr.Mterial  gain  to  both  side-  by 
(urning  to  arliit ration,  but  lliere  is  an  immense  gain  for  pride 
and  temper.  Men  who  have  backed  their  demamls  by  threat 
and  ultimatum  find  it  difficult  to  retreat  to  a  halfway  position. 


I 


I     %  ■  -  irt-J^ 


( 

;1    i^' 


314  PROBLEMS  OF  LABOR 

even  though  they  know  that  it  will  be  better  to  do  so  The 
existence  of  a  respected  standing  tribunal  serves  in  uidustnal 
conflicts  as  the  Hague  Court  of  Arbitration  serves  between 
nations:  it  enabl(<s  the  parties  to  withdraw  without  loss  of 
pride  from  a  bellicose  attituile. 

There  -m-    indeed,  some  (luestions  of  principle  which  it  is 
,limcult  to  refer  to  arbitration,  and  which  it  would  be  no  less 
.liflicult  for  an  arbitrator  to  settle.     Such  are  cjuestions  as  to 
the  recognition  of  tlu;  unior.:   shall  the  employer  deal  with  his 
men  one  by  one,  or  in  a  body  through  their  chosen  representa- 
tive V     Here,  as  we  have  seen,  th.>  balance  of  social  gam,  and 
so  *he  answer  to  the  questi..n  of  principlr,  is  against  the  fre- 
quent contention  of  the  employers.     Hut  an  arbitrator  would 
have  to  dis.-uss  tlie  de(-pest  problems  of  ecoiwmics  and  ethics 
to  give  a  satisfactorv  answer  to  them,  and  certainly  would  fad 
to  convince  botli  disputants  even  if  he  atten,i)ted  such  a  d.s- 
cu-ion      Again,   as   to  the  clos.-d  sh<.p:    shall  the  employer 
ugree  to  en.plov  only  union  members,  and  .lischurge  tl.r  non- 
union men?     Here  the  balan.-e  of  social  gain  is  .loubttul,  and 
the  answer  to  the  (piestion  of  principle  hard  to  give.     Such 
nntter-.  can  never  be  settled  by  arbitration.     If  the  e<n,>loyec-s 
are  reallv  s.'t  on  the  .losed  si,..,.,  they  can  get  it  only  by  insistence 
and  lijihl;    and  wh.tl.er  they  will  su.-cee.l  in  getting  it  and 
kcping  it.  dcpemls  on  tlu'  accuit-ulating  experience  with  the 
ill  and  good  of  t  lie  practi-e. 

Hut.  to  reprat,  most  disputes,  and  especially  those  which 
,uv  lil..lv  to  be  relVind  to  arbitrators,  turn  on  matters  of  less 
pr(.f.)und  b.arin;x.  wages,  hours,  shop  cnn.litions,  fines,  and 
th.'  liKr.  Agreement  on  these  is  farililatr.l  by  arbitration 
thn.ugli  iH  rmMiiiUt  private  boards,  or  i.ublic  Ix.ards. 

I'crmancnl  ].nvatc  board-  rest  on  tra.ir  agrn-ments.  They 
,l,,p,,,„l  on  lb.'  .Ai>t(iMv  ol  organization  among  .n.pioyees  as 
wrll  as  .-mploy.Ts  Tluy  an  a;i  outcome  of  coll.'ctive  bargain- 
ing, Carried  out  witli  ri-orous  ,-onsisteney.  tliey  entail  the 
dosed  sho,.;  sine-  tli.-v  ;  -w^r  tint  no  agreements  are  made 
by  individual  workim ii.     None  the  les,<.  trade  aKieements  may 


i   \ 


SOME  AGENCIES   FOR  INDUSTRIAL   PEACE      315 

work  in  practise  without  the  universal  closed  shop,  since  union 
terms  and  bargains  set  a  standard  to  which    the    nonunion 
estabUshnu'tits  tend  to  conform.     Such  compacts,  us  tiicy  have 
developed  in  course  of  trial,  provide  for  regular  meetings,  for 
u  settled  course  of  procH'dure,  and  for  reference  to  arliitrutors 
of  disputed  points.     It  is  not  necessarily  agreed  in  atlviaice 
that  the  decision  of  the  arbitrators  shall  be  binding.     Their 
function  may  be  that  of  conciliation  rather  than  of  arbitration. 
Indeed,  it  is  probably  better  so ;    since  in  any  case  they  can 
have  no  power  to  enforce  an  award.     Whatever  the  precise 
stipulation  as  to  arl)itralion,  such  compacts,  to  repeat,  depend 
on  permanent  and  well-organized  trade-unions.     It  is  in  .>*o  far 
true  that  the  unions  make  for  imlustrial  peace.     They  ease  the 
process  of  bargaining,   make  for  delii)erate  action,  lessen  the 
proltability  of  frwpient   and   unruly  strikes.     No  doubt,   this 
combine<l  action  of  employers  and  employees  brings  a  further 
danger, —  that  the  two  will  unite  in  a  tight  organization,  keep 
out  other  employers  and  employees,  and  levy  on  the  public  by 
restricting  supply  and  exacting  a  monopoly  jirice.    The  serious- 
ness of  this  danger  dei>ends  on  the  extent  to  which  competition 
from  outside  employers  and   noimnion  workmen  can  l)e  shut 
off.     We  have  seen  that,  as  between   workmen,   the  drift  of 
industrial  change  is  against   the  permanent  maintenance  of  a 
memopoly   jiosition.     As    between    tiie   employing   canituli.sts, 
this  comforting  assuriincc  is  iiy  no  means  .so  ele  .ut  their 

Btriving  for  combination  raises  social  (piest ions  (hfTerent 

kind  from  those  here  under  consideration. 

The  same  beneficial  n  Milt,  of  lessening  the  numt)er  of  indus- 
trial disputes,  is  promoted  by  pulilic  boards  of  arlntration.  such 
IVH  arc  established  in  many  of  our  ^t;ltes,  in  France,  ami  in 
Kngland  through  the  Hoard  of  Trad.-.  These  are  commonly 
hoards  of  conciliation  a«  well  as  of  arbitration.  They  are 
authori'.ed  >  oIT.t  their  ser\  ices  as  medial. >rs  and  coni'iliatorrt 
when  H  <lis,),tie  occurs,  and  to  make  pulilic  report  of  their  action, 
—  sometinuw  u!i  elTective  method  of  briiming  public  opinion 
to  Iwar  in  aiil  of  u  settlement.     As  boards  of  mbitration,  they 


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31Q  PROliLEMS  OF   LABOR 

provide  a  standing  tribunal  to  which  the  disputants  can  refer, 
and  so  can  save  their  pride  and  probably  their  money     Their 
efficacy  depends  largely  on  the  character  of  the  -d.v.duds 
appointed  to  this  delicate  task.     Even  with  the  best  of  ap- 
pointees, and  with  the  best  exercise  of  judgment  on  their  part, 
there  will  be  some  disputes,  very  possibly  a  large  proportion 
of  the  whole,  which  will  not  be  referred  to  them.     Among  those 
which  are  referred,  or  are  taken  in  hand  without  any  reference 
by  the  disputants,  many  must  fail  of  settlement  by  arhitrution 
or  conciliation.     The  system  is  no  panacea  against  strikes  or 
losses.     On  the  other  hand,  even  with  limit(.d  success  (and  the 
best  of  our  American  boards,  that  of  the  state  of  Masstvhu- 
setts,  has  had  but  limited   success)  it  is   well    worth  while. 
Though  many  grave  cessations  of  work  have  taken  place  in 
Bpite  of  the  stan<iinK  publir  boards,  they  more  than  repay  the 
expense  of  maintenance  if  they  succhmI  ir  preventing  a  moder- 
ate numlH-r  of  struggles.     Though  but  a  palliative  for  industrial 
ills   arbitrutidU  is  none  the  less  helpful.  _ 

I'ublidy  appointed  boanls  of  arbitration  have  one  intrinsic 
advantage  over  private  boards.     On  the  latter  it  is  common  to 
have  a  member  selected  by  tlu-  employers,  another  selected  by 
the  .-mi.loyees,  and  a  third  selecte,!  by  tlu'se  two  (or  by  some 
other  met  ho.  I  supposed  to  guard  against   bias).     In  practise, 
this  l.-aves  the  .lecision  virtually  to  the  third  member,  and  loses 
Xhv  advantage  of  real  contribution  by  all  the  members  to  fa.r- 
nun.led    consideration.     I'ul'H*-    boards,    especially    when    aji- 
p„i,„,,l  in  advance  and  without    rel.Tenc.-  t.,  the  particular 
..ontroversv  or  trade,  ar.'  more  likely  t..  bring  this  a.lvantage. 
None  tin-  less,  the  contestants  are  apt  t..  prefer  private  boar.'s, 
for  the  very  reason  that  each  wishes  to  have  among  the  judges 
at  lea.st  one  advocate. 

§  «.  Quil(>  a  dilTerent  set  of  problems  U  piesenl.d  by  com- 
pulsorv  arbitration;  tliat  is,  by  tribunals  to  which  the  eon- 
tending  en.plovcrs  and  employees  must  submit  th.'ir  differences, 
and  by  whos.-  de.  isi.ms  they  mast  abide.  Such  is  the  sysleni 
now  in  use  in  Australia.     Its  .ssenee  i^  that  ju.licial  tribunals 


SOME  AGENCIES  FOR  INDUSTRIAL   PEACE       317 


r 


are  constituted,  to  which  application  for  the  settlement  of  dis- 
putes may  be  made  by  either  party.  The  terms  fixed  by  the 
tribunal  become  binding  on  both,  and  failure  to  carry  on  work 
under  these  terms  becomes  a  criminal  offense.  A  strike  or 
lockout  is  punishal)le  by  fine  or  imprisonment.'  The  triliunal 
may  consist  solely  of  a  person  or  persons  legally  trained  (say 
a  judge  of  the  established  courts  of  law),  or  may  have  in  ..ddition 
persons  conversant  with  the  particular  industries.  Obviously, 
workmen  can  ajjpear  l)efore  such  a  court  only  as  organizations 
or  unions;  for  not  individual  complaints  are  to  l)e  settled,  but 
disputes  applicable  to  all.  Obviously,  also,  these  organizations 
must  be  open  unions,  and  the  statutes  or  the  courts  nuist  make 
provision  for  their  being  ojx'n.  It  is  hardly  less  essential  that 
the  emjiloyers  should  l>e  organized,  since  for  them  also  there 
are  to  be  rates  and  rules  of  general  application.  The  system 
tlius  involves  a  court,  i)owers  of  coercion  by  that  court,  and 
the  organization  lH)th  of  enii)loyers  and  employees  as  parties 
to  proceedings  before  it. 

The  settlement  of  wages  under  siuli  a  system  is  likely  to  be 
comparatively  easy  at  the  outset.  The  adjudicated  rates  uf 
wages  are  likely  to  lie,  when  first  fi.xed,  somewhat  higher 
than  those  i)reviously  current;  but  still  "fair,"  and  not 
higher  to  such  an  extent  as  to  prvsent  a  real  cpu'stion  of  prin- 
ciple. There  is  usually  a  certain  amount  of  slack  in  industrial 
arrangements  which  cau  be  taken  up  without  serious  strain. 
But  OS  time  gctes  on,  the  workmen  and  the  conununity  in  general 
will  again  become  accustoiiu-d  to  tlie  new  scale.  The  workmin. 
it  is  almost  certain,  will  i)efore  long  ask  for  more,  and  then  for 
more  and  still  more;  until  finally  the  tribunal  will  l>e  com- 
pelled to  consitler  how  far  it  can  go  in  modifying  the  (cinr.  of 

I  In  \rw  Zriiliiml.  wlirrr  Iti'-  Tir^t  rdHipMl-torv  iirhitriitioii  liiw  \vi«  iiii^nl 
(ill  IH'.H'i!.  u  ttrik"  "i  !i"'k"i>i  I"  i miir^  i  .TimiiiMl  .itT.Tii.'  (Hilv  if  iini'  i>f  \]v  \'  ii  li  ■;« 
\\.\*  iimih-  ii|.pli."iliiiii  to  the  iirliitr'ilinii  cuvirl,  'It  Imtli  |mrlii<  pr.  f.  r  lo 
wltlo  thi'ir  ilifriiMiltii'H  liv  r«  Rtriki'.  tli"  law  pi-rmitK  llinn  tn  i|m  tlii«  "  Irj  tin' 
Ni'w  .South  Willi"!  Iiiw  (l!Mtl).  hnwi'vcT.  c'ViTV  Htriki'  or  Inrkoul.  pri.ir  tn  or 
pi'iwjjns  r'>!>«i'!"rat!"n  'vv  tlu-  I'mirt.  i:>  n  miniliinciiiinr  mul  piiiiithiMr  mi  *\\'\\ 
III  iitlirr  Wiinl".  in  \>-w  Smitli  Widrn,  all  ditputcn  mitui  U-  n'fi'rn'vl  to  tlii-  iiilii- 
trHtiou  courl.      Sri«  V.   ('lurk,    Thr  Ltitmr  Mnvimtnl  in  AutlrtttM,  pp.    IS9,  101. 


I 

1 

f  '■ 

1 

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318 


PROBLEMS  OF  LABOR 


distribution.  Where  stop?  What  are  "fair"  wages?  That 
question  cannot  be  settled  without  settUng  what  is  fair  interest 
and  fair  business  profits.  Ultimately,  the  tribunal  must  deter- 
mine what  is  fundamentally  just ;  how  much  the  owners  of 
wealth  are  justly  entitled  to  in  the  way  of  interest;  what  is  a 
"just"  return  to  the  einplc>y.>r  in  the  way  of  business  profits; 
why  some  laborers  are  to  receive  more  than  others,  and  what 
is  just  as  between  the  different  groups. 

In  other  words,  this  sort  of  labor  legislation  involves  a  very 
different  attitu.le  toward  competition  from  that  which  under- 
lies factory  legislation,  regulation  of  hours,  chiklren's  work, 
minimum  wages.     These  aim  to  modify  the  plane  of  competi- 
tion.    They  i^rohibit  some  sorts  of  lal)or  bargains,  or  impose 
u!  .^n  all  employers  reciuirements  as  to  safety,  cleanliness,  health. 
But  compulsory  arbitration  does  not  content  itself  with  defin- 
ing the  limits  within  which  connwtition  shall  work.     It  sup- 
plants competition.     Wages,   interest,   profits,   are   not  to  be 
determined   by  the  bargaining  of  employers  and  emi)loyoes, 
with  liberty  for  each  party  to  desist  at  will  ami  see  how  the 
other  can  get  on  without.     Tiiey  are  to  be  fi.x.-d  by  public  au- 
thority;   ami  this  involves  settlement  by  pul)lic  authority  of 
the  distribution  of  wealth. 

This  ultimate   problom   may  l)e   disguised   and    postponed. 
It  is  even  conceivalile  that  it  will  Ik-  po>tponed  imlefinitely. 
The  force  of  custom  is  i-normously  strong.     Possibly  the  work- 
men will  never  i)ush  their  demands  so  far  as  to  raise  the  ques- 
tion of  the  ultimate  limit.     They  imiy  ccntent  themselves  with 
such  n^mor  changes  as  are  constantly  taking  place  under  the 
induence  of  general  economic  causes,  and  are  disposed  of  with 
substantially  the  same    results   by  voluntary  arbitration  and 
trade   union   ii.livity.     Sudi   has  l)ecii   hitherto,   in  the   lirief 
period  during  wliich  it  has  been  cm  trial,  the  wi^rking  of  com- 
pulsory   arbitration    in    \uslralia.     Hut    witli    the    increasing 
pojilirsd  pow.T  of  tlie  lal»orers,  their  (luick  habituation  to  any 
higher  scale  of  wages,  j,iid  tli<ir   recurr        demands  for  wages 
still  higlKT.  it   i>  probable  that  the  fundi    lental  problem  will 
sooner  or  later  have  to  be  faced,  and  somehow  solved. 


SOME   AGENCIES  FOR  INDUSTRIAL  PEACE      319 


What  the  outcome  then  might  be,  it  would  be  rash  to  pre- 
dict. Indefinite  increase  of  all  wages  means  a  cutting  down 
of  the  returns  to  investors  and  business  men,  ani!  —  so  we  should 
argue  on  the  basis  of  our  general  tiieorizing  on  distribution  — 
an  eventual  check  to  accumulation  and  to  business  enterprise. 
This  may  lead  to  an  early  reaction,  and  to  a  reduction  of  wages 
once  more  to  rates  consistent  with  the  present  mode  of  con- 
ducting industry.  Or  it  may  lead  (and  this  i.s  equally  pos- 
sible) to  still  further  radical  changes,  —a  st<'ady  assumption  of 
many  sorts  of  business  management  by  the  state,  ami  the 
appropriation  or  purchase  by  th(>  state  of  th(>  capital  now 
owned  by  investors  and  managed  by  business  men.  In  oth(>r 
words,  it  may  lead  to  a  trial  of  soeialism,  which  puts  into  effect 
without  disguise  the  same  principle, — the  settlement  of  dis- 
tribution bv  the  stat(>.  Few  people  see  tliiit  the  scheme  for 
compulsory  arbitration  points  to  changes  so  far-reaching. 
Nothing  of  the  sort  was  contemplated  when  it  was  established 
in  New  Zealand  and  the  other  .Australian  colonies,  and,  though 
it  has  already  become  apparent  that  nuicli  more  is  involve(l 
than  a  device  for  merely  patching  up  industrial  disputes,  the 
full  possibilities  do  not  yet  loom  up  iu'fore  the  .Australians. 
The  cour.se  of  tlieir  experiment  will  be  w.itched  with  interest 
by  all  students  of  M)eial  and  econoinic  problems;  both  to  see 
whether  tlie  tempt  r  of  the  woikinen  will  lead  them  to  press 
their  (h'numds  to  the  limit,  and  what  may  be  the  consequences 
if  they  do.  Many  years  will  probal>ly  elapse  before  this  re- 
markable experiment  will  hav<'  been  carried  so  far  as  to  make 
clear  the  ultimate  outcome. 

During  the  intermediate  stage,  when  no  very  riM'ical  diangi  s 
are  attempted,  a  stage  which,  as  has  just  been  said,  m.'iy  be 
prolonged  indefmitely,  —  one  other  difriciilty  i^  more  than 
likely  to  appear  :  hi>w  to  enforce  tlie  artuf ration  dici>i..ii-  when 
they  prove  to  lie  against  tlie  worktuan.  I'ltiforcemeiit  ;m.iiti.t 
the  emi)lo\i>rs  is  easy  enough.  They  have  propiTty,  ii^ilmIIv 
ample  and  visii)ie,  ;iiid  tiiey  can  be  brougtii  to  hook  i>y  iitic". 
Hut  against  employees  lines  tmist  remain  a  merely  nominal 


i<«l 


f 


M 


I  m   I 


r  ^ 


I  III 


w^Mm^^tm^^  'j^m 


I  , !' 


I     \^ 


320  PROBLEMS  OF  LABOR 

mode  of  enforcement.    Quite  apart  from  the  expense  of  co. 
lecting  driblets  of  fines  from  scattered  workmen,  the  political 
odium  of  the  proceeding  will  prevent  any  democratic  govern- 
ment from  pushing  it  far.     Experience  of    this   kind -that 
con.pulsory  arbitration  works  in  effect  one  way  only  -  may 
possibly  lead  to  a  radical  change  in  the  whole  system  before  .t 
i.  carried  to  the  stage  of  bringing  the  fundamentals  of  distribu- 
tion to  a  test.  ..    ,    ,  ♦ 
§  7    Compulsory  arbitration  may  be  applied,  however,  not 
to  all  industries,  but  to  certain  industries  only,  selected  because 
in  them  continuity  of  operation  is  of  special  importance  to  the 
public      Such  are  many  of  the  so-called  public  service  indus- 
tries -railwavs  and  street  railways,  telegraphs  and  telephones, 
gas  works,  electric  works,  and  th.>  like.     It  is  intolerable  that 
the  means  of  everyday  communication  should   be  sudden  y 
brought  to  a  standstill,  or  the  supply  of  artificial  light  suddenly 
cut  off,  because  the  employers  and  employees  cannot  come  to 
tern.'*      Nothing   is  more   significant  of  the  easy-going  good 
nature  of  the  American  people  than  their  submission  in  patience 
to  repeated  "tie-ups"  of  this  kind.     In  England,  concerted 
c<'8<»ation  of  work  in  tlu'se  industries,  without  reasonable  notice 
given,  has  been  made  punishable  by  the  criminal  law,  -  a  mode 
of  dealing  with  the  situation  which  is  probably  of  no  great 
practical  .'tTect  (since  the  enforcement  of  the  criminal  law  against 
the  strikers  is  difficult),  but  one  which  at  least  registers  a  strong 
,,„,,li,  „pinion.     In  this  country  the  proposal  has  been  made 
to  compel  nsort  to  arbitration  in  su.-h  cases,  and  thus  prevent 
the  spasiiKuli-  int.'rrui)tioii  of  great  i.ul)lic  services. 

("ompuls.Tv  arbitration  ..f  this  sort  clearly  would  not  have 
tn  face  thr  i.inblci.is  which  underlie  general  compulsory  arbitra- 
tion The  sta.ulanls  of  wag.-s  accepted  as  right  for  the  par- 
ticular industries  would  be  those  which  obtained  m  snmlar 
„,,,„.ations  not  .ubjecte.l  t.,  arbitrati.m.  .lust  as  a  partia 
..vt.nsion  of  public  ownership,  to  railways,  tcleplumes,  and 
other  srlcctc.l  industries  does  n«.t  con.i.ei  the  public  managers 
t.,  settle  i.riucipl.s  of  .l.stribution  of  their  own,  and  therein  is 


I  -I 


SOME   AGENCIES  FOR  INDUSTRIAL   PKACE      321 


i  .1 


essentially  different  from  socialism,'  so  a  partial  application  of 
compulsory  arbitration  does  not  put  the  public  authority  in 
the  position  of  setting  up  any  general  standards  of  justice  for 
wages  and  profits. 

The  serious  difficulty  would  be  that  of  securing  enforcement 
of  the  decisions.  Here,  as  in  the  case  of  general  arl)itration, 
enforcement  against  the  employers  is  feasible;  but  not  so  as 
against  the  employees.  In  practise,  the  real  efficacy  of  such 
"compulsory"  arbitration,  .so  far  as  the  workmen  are  concerned, 
will  lie  in  the  state  of  pul.lic  opinion.  Ilenee  it  will  serve  in 
reality,  not  as  a  method  of  compulsion,  but  as  one  of  concilia- 
tion. Yet  it  may  none  the  less  be  of  great  usefulness.  It  serves 
to  focus  public  opinion,  and  so  to  bring  a  powerful  force  to 
bear  in  favor  of  peaceful  settlement.  Thus,  in  the  United 
States,  the  Interstate  ConuiHTce  Counnission  and  the  Com- 
missioner of  Lal)or  are  authorized  by  law  -'  to  act  as  mediators, 
and  to  arrange  for  arbitration,  as  to  railways;  an  authority 
which  has  been  used  with  success  in  not  a  f<>w  cases  of  threaiened 
struggle. 

It  is  somewhat  curious  that  both  in  England  and  in  the 
United  States  the  trade-unionists  liave  l)een  opi)()sed  to  schemes 
for  compulsory  arbitration,  whether  of  general  or  of  partial 
application.  They  prefer  their  liberty  of  striking  anil  fighting. 
This  8tat(!  of  feelins,'  is  probal)ly  due  in  the  main  to  the  belief 
that  the  control  of  pul>lii  affairs  is  in  the  hands  of  the  property- 
owning  class,  and  that  tiie  workmen  would  virtually  be  sniiject 
to  compulsion  from  their  oi)ponents.  Ii\  the  United  States, 
moreover,  (he  feeling  is  strengthened  l»y  the  spirit  of  lawless- 
ness which  still  so  largely  infects  the  trade  union  movement, 
and  which  is  shown  also  by  their  hatred  of  the  soldiery.  The 
truth  is  that  the  workmen  are  not  fairly  conscious  of  the  power 
which  they  i)ossess  in  a  democratic  community.  Tiiey  ire 
hedged  in  by  all  the  customs  and  conventions  of  tlie  existing 


'  Sep  hciow,  Ciiiipli  r  i'.i,  }  1 


p  424, 


0  •<>•(' 


iiUfirKMiiiiitiii  \.("»(  IhUH;  Bi't' 


I'   .'4.  Stiitutm  at  I, urge.  Vol.  30, 


s 


t.J 


VUb.  II 


'^'^■^^m. 


J    '! 


322 


PROBLEMS  OF  LABOR 


order,  and  are  not  aware  of  their  ability  —  would  they  but 
exercise  it  —  to  burst  these  bonds.  Hence  they  prefer  measures 
which  strengthen  their  position  in  the  industrial  system  as  it 
stands,  to  measures  that  look  to  any  fundamental  changes  in 
that  system.  Like  the  business  men  with  whom  they  nego- 
tiate, they  rarely  look  far  into  the  future.  Except  for  the  few 
who  are  touched  by  the  socialist  gospel,  —  and  but  few  are 
really  touched  by  it,  though  many  use  the  phrases,  —  they 
think  only  of  innnediate  results  within  the  traditional  frame- 
work of  society. 


if 


'««&7^ 


MM 


CHAPTER  58 


Workmen's  Insurance.    Poor  Laws 

§  1.   Irregularity  of  earnings  is  a  much  more  frequent  cause 
of  distress  than  are  earnings  absolutely  small.     Men  accom- 
modate themselves  to  almost  any  income  not  below  the  bare 
minimum.     But  few  men  provide  adequately  for  vicissitudes. 
Where  the  margin  between  receipts  and  ncM-ossary  expenditures 
is  slight,  any  interruption  of  income  means  suffering.     Even 
when  the  earnings  are  such  as  to  make  possible  a  sufficient  pro- 
vision, by  savings  or  insurance,  the  provision  is  not  often  made. 
How  to  mitigate  the  consequent  suffering  among  the  great 
mass  of  the  i)opulation  is  one  of  the  most  urgent  of  social  prob- 
lems.    It  is  a  problem,  too,  to  which  more  and  more  attention 
has  been  given  in  recent  times.     This  increase  of  attention  has 
not  been  (Uie  to  greater  irregularity  in  earnings,  or  greater  need 
of  provision  for  contingencies.     I  know  of  no  satisfactory  evi- 
dence to  sliow  whether  the  chances  of  ilhiess  uncared  for,  of 
disabling  accident,  penniless  old  age,  are  greater  now  than  in 
former  times.     But  the  modern  world  is  clearly  more  sensitive 
to  the  evils.     Here,  as  elsewhere,  conditions  accepted  in  former 
days  as  matters  of  course  are  now  regarded  as  iatoleral)le,  and 
a  strenuous  effort,  is  made  to  remedy  them. 

Accident,  sickness,  old  age,  unemployment,  — these  are  the 
main  causes  of  irregularity  in  earnings.  As  to  all,  it  will  be 
necessary  to  keep  in  mind  a  largo qiiestion  of  principle:  liow 
far  can  aid  be  i)rovid(Ml  without  undtTuiining  the  character  and 
tlirift  of  the  individual? 

§  2.  Provision  against  accident  should  be  arranged  through 
ii\surance.  The  only  question  can  be  as  to  the  best  way  of 
making  the  insurance  effective.  By  far  the  most  important 
class  of  accidents,  though  not  the  only  important  one,  is  that  of 

3'2;j 


I  l»j 


[iV  ■ 


Il  lil 


324 


PROBLEMS  OF  LABOR 


accidents  to  workmen  occurring  in  the  course  of  their  employ- 
ment. Such  will  infallibly  occur ;  and  it  is  equally  certain  that 
no  effective  provision  will  be  made  against  them  by  the  work- 
men themselves.  It  is  even  doubtful  whether  that  sort  of 
rough  provision  is  made  which  would  appear  in  a  higher  rate 
of  pay  in  hazardous  employments.  The  risks  of  injury  in  an 
oinploymont  arc  accepted  by  almost  all  workmen  with  virtually 
no  attention  or  allowance ;  and  when,  sooner  or  later,  the  in- 
evitable disaster  occurs,  they  or  their  dependents  are  left  help- 
less. 

The  chance  of  accident  varies  in  different  occupations.  It  is 
sufficiently  well  ascertained  in  most  occupations  to  be  suscep- 
tible of  insurance,  both  as  to  accidents  having  fatal  result  and 
as  to  those  bringing  permanent  or  temporary  disability.  When 
once  the  possibility  of  dealing  with  them  on  actuarial  principles 
is  clear ;  when  it  is  certain  that  the  workmen  themselves  will 
not  insure ;  and  when  the  sense  of  social  sympathy  and  duty 
becomes  so  strong  that  provision  of  some  sort  is  insisted  on,  — 
the  only  solution  is  to  make  the  employers  responsible.  Let 
them  do  the  insuring,  paying  premiums  from  time  to  time 
which  will  enable  a  death  benefit  or  pension  to  be  paid  to 
widows  and  orphans,  or  a  pension  to  the  disabled  workmen 
tliemselves.  The  premiums  required,  if  paid  uniformly  by  all 
employers,  will  enter  into  the  expenses  of  production  of  all  — 
more  heavily,  of  course,  for  those  whose  trade  entails  the 
largest  risks  —  and  will  affect  in  varying  degrees  the  prices  of 
the  e(»nuii()(lities  sold.  Such  a  plan  will  have  far-reaching 
effect  only  if  it  is  made  of  compulsory  and  universal  applica- 
tion, and  if  the  mere  fact  of  employment  fixes  the  obligation 
of  the  employer,  irr(>spective  of  any  agreement  between  him 
and  the  rtnployoe. 

The  desired  result  of  assureil  provision  can  be  secured  either 
l)y  requiring  the  omployers  to  org;u\ize  directly  in  insurance* 
iis  uriutiwiis  of  tlH-ir  own,  or  hy  Kimply  imposing  on  them  a 
liability  against  which  they  can  insure  in  companies  existing 
for  this  purpos<'.     Of  the  former  tjpe  of  procedure,  Germany 


k 


WORKMEN'S  INSURANCE.    POOR  LAWS 


325 


I 


supplied  the  earliest  and  most  conspicuoi.-  example;    of  the 
latter,  Great  Britain.     The  German  system,  establi.-hcd  (1884) 
as  the  first  part  of  the  Empire's  elaborated  system  of  work- 
men's insurance,'  compels  the  employers  in  each  trade  to  form 
a  sort  of  insurance  company  carefully  supervised  by  the  govern- 
ment, to  contribute  premiums  adjusted  to  the  risk  of  accident, 
and  therelfy  to  enable  the  payment  of  pensions  to  disabled 
workmen  (at  the  rate  of  two  thirds  their  former  wages  for  those 
completely  disabled)  and  corresponding  pensions  to  widows  and 
minor  children.     The  British  Workmen's  Compensation  Act 
(1897),  on  the  other  hand,  simply  provitles  that  the  employer 
must  pay  a  pension  (of  one  half  the  former  wages,  but  not  exceed- 
ing £1  a  week)  in  case  of  disability,  and  in  case  of  death  a  lump 
sum  amounting  to  three  years'  wages,  with  a  minimum  of  I"  150 
and  a  maximum  of  £300.     In  what  manner  he  shall  make  the 
provision  is  left  to  his  own  iliscretion.     In  practise  he  almost 
always  insures  in  an  employers'  liability  company;    very  few 
employers  carry  on  their  operations  on  so  large  a  scale  and 
with  such  continuity  as  to  make  it  safe  to  insure  themselves. 
Substantially   on  the   same   principle   is   the    French   system 
(established  189£)  where  the  pension  in  "ase  of  total  disability 
is  two  thirds  of  the  wages  rate,  and  where  also  the  design  and 
the  effect  is  to  compel  employers  to  carry  insurance  against 
their  unqualified  liability.     The  German  method  is  natural  in 
a  country  where  the  public  administrative  system  is  developed 
to  high  efficiency,  and  v.luMe  detailed  supervision  by  govern- 
ment authority  is  helpful  and  not  unwelcome.     The  English 
and  French  nu'thods  are  adapted  to  communities  whose  tradi- 
tions and  habits  ure  against  such  far-reaching  govermnent  regu- 
lation.    Each  mak(>s  certain,  though  not  in  the  s.;<ne  way  or 
quite  to  the  same  extent,  provision  against  accidents  ocemring 
in  the  cours(>  of  employment." 

>  Thi»  system  forms  ii  consistent  whole,  and  niinht  ho  denrrihed  as  ii  wholi  ; 
but  the  different  piirt.i  ure  h.-re  taken  up  separately,  neoordinK  as  tliey  irivolvn 
difTiTPnt  phases  of  the  problem. 

•It  should  )»  noted  that  the  Knglish  statute  gives  the  workman  an  option 
between  proeci'ding  under  the  Coiupenautiou  Act  and  suing  the  employer  for  hi- 


! 


-V 


f 


-'^fe^lia 


Si   ;'' 

'  ;      'I 


I 


V 


» 


I'f  ^ 


f  ■  4 


326 


PROBLEMS  OF  LABOR 


No  objection  of  priis  iplo  can  be  raii-ed  against  such  a  s -stem. 
Injunes  from  accideiu  cannot  be  shammed,  nor  will  they  be 
incurred  of  set  purpose.  No  dou!»t  tliey  will  be  incurred  through 
negligence.  But  the  negliccence  is  not  made  greater  by  the 
assurance  of  provision.  It  remains  tht  same,  unfortunately, 
whether  the  workman  knows  or  does  not  know  that  he  will  be 
taken  care  of  if  anything  happens.  Negligence  can  be  offset 
effectively  only  by  introducing  safety  apjiliances,  by  guarding 
machinery,  by  stringent  discipline,  —  precautions  hich  the 
employer  is  stinmlated  to  adopt  when  he  is  certain  tliat  the 
amount  of  his  premiums  will  l)e  lessened  by  them.  In  the 
legislation  both  of  Germany  and  of  Cireat  Britain  it  is  enacted 
that  a  workman  who  intentionally  bri-gs  an  injury  on  himself 
shall  have  no  claim ;  but  this  sort  of  contingency  may  be  dis- 
regarded. There  is  no  inducement  to  malingering  or  improW- 
dence  because  of  provision  against  accident.  The  humane 
impulse  hence  need  not  be  held  in  check  by  a  fear  that  the 
immediate  relief  of  suffering  will  be  foll(»\ved  by  subsequent 
demoralization  of  the  sufferer. 

Who  ultimately  bears  the  charges  which  under  such  a  system 
are  first  imposed  on  the  employers?  It  is  sonutiines  reasoned 
that  they  will  fall  on  consumers.  Emjiloyers.  no  doubt,  will 
bear  them  at  first,  as  they  would  bear  a  tax  (and  indeed  com- 
pulsory payments  of  this  sort  are  difficult  to  distinguish  from 
taxes).  But  in  the  end  the  charges  are  expected  to  influence 
prices,  as  will  any  other  additions  to  tne  expens(>s  of  produc- 
tion. Hence  it  is  arguetl  they  will  be  borne  tiiuiUy  by  con- 
sumers. But,  obviously,  this  sort  of  reasoning  needs  to  be 
qualified  as  nuich  as  similar  reasoning  ai)plied  to  t;ixes.'  It  is 
true  that  a  tax  on  any  one  commodity  raises  its  price,  and 
affects  the  consumers,  not  the  capitalist  producers  or  employerfl. 
But  a  tax  on  all  comnio''.ities  cannot  raise  all  prices.     So  far  aa 

lial)ility  iindrr  (lio  liiw  ih  it  sfnoil  luforr.  But  tlic  trrnd  is  for  li'ss  and  Ion 
frvtmrsv  tr,  ?hv  lattvrrri-tho'l.  an'!  =r:--rv  and  m---  r--rt  tr>  •!;.•(  %;:n!.:-r!^/i!if.ti 
Act;  iitid  it  it  |>r(il>.'ili!i'  IliMt  rcsdrt  to  cniiilovris'  li.ibility  nf  the  nld  sort  will 
cvontuiilly  diHnpprnr. 

'('(.mpurr  whnt  is  Kiiid  below.  H.,(ik  VIII,  (".    .iter  70,  on  the  iiuidcnro  of 
tnxn, 


■8 

i 


WORKMEN'S  INSURANCE.    POOR  L.    vi 


327 


insurance  premiums  bear  more  heavily  on  one  industry  than  on 
another,  tlioy  will  have  an  effect,  under  competitive  conditions, 
on  relative  prices,  and  so  will  be  felt  by  the  consun)ers  of  those 
things  made  in  the  hazardous  industries.     But  so  far  as  they 
affect  all  industries  alike,  prices  will  not  be  affected.     Employers 
must  bear  the  charge  once  for  all,  subject  to  only  one  avenue 
of  escape,  —  they  may  lower  wages,  directly  or  indirectly,  im- 
mediately or  ultimately.     Direct  and  hnmediate  nductions  of 
wages  are  highly  improbable.     Here,  as  in  other  similar  situa- 
tions, there  is  likely  to  l>t  enough  slack  in  the    uljustment  of 
wages  and  prol;'     to  enable  some  tightening,  some  drain  on 
profits,  without  any  immediate  effect  on  wages.     But  when 
such  a  system  is  in  steady  operation,  and  has  been  for  some 
time  in  operation,  every  employer  knows  that  the  act  of  em- 
ployment involves  not  only  wages,  but  tiiese  additional  charges 
also.     His  calculations  must  be  corre>[)oii  lingly  afff'ftcd.     The 
outcome  is  likely  to  be  that  the  insurance  «i  irge>  will  ultimately 
come  out  of  the  workmen's  own  earning>       I'his  will  taKc  place, 
not  necessarily  by  any  process  of  direct  reduction-  m  wages, 
but  more  probably,  in  progressive  countri-  -  h'lJ'  Gerirumy  and 
England,  by  a  failure  of  wages  to  advaii''     <  mui  ii  as  th^y  would 
otherwise  do.     Obviously  it  is  no  (ilij      lo's  t(.  an  insurance  sys- 
tem that  the  premiums  ultimately  ca.,.,-  from  the   beneficiaries 
themselves. 

In  case  of  industries  having  a  mono 
this  shifting  of  the  charges  is  much  I. 
Puch  industries  will  indeed  share  with  o 
on  all  wages.     But  so  far  as  they  are  s 
they  will  probably  bear  tlie  charges  oi 
will  probaiily  bear  special  taxes  once  ! 
tion,  for  example,  lirings  great  risks  fo 
ways  should  be  called  on  to  pay  comjiarai  i\  •  K 
premiums.    These,  imle;-s  extremelv  heavy,  ar 
Hhiftetl  to  thv  pub!i=-  in  i-igh.T  t:;!--  or  b-iirht 
stituf(>  a  deluiitive  burdi'n  for  the  employers 
or  public. 


effei'is 

arges, 
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'^   or  quasi-nioiMiHily, 

,  ely  to  tak'^  pl.ici'. 

crs  an>'  g<  nert 

'ct  tti  s])e<'ial 

•r  ;i'l,  ju-i 

..ii       l?,.ilw; 

\b      !.iirin)iti,  : 

li^j'i   l!>-  ir:ir:   f* 

ol   liKf!^  u,  he 

tlx'.  i'on- 

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328 


PROBLEMS  OF  LABOR 


Employers  on  a  large  scale  accommodate  themselves  most 
easily  to  a  compulsory  iasurance  system.  They  have  large 
resources,  allow  a  good  margin  for  contingencies  of  all  sorts, 
commonly  lay  their  plans  with  reference  to  considerable  periods. 
Smaller  employers  are  less  able  to  adjust  themselves  to  addi- 
tional expenses.  Hence  the  rigorous  application  of  any  form 
of  lalM)r  legislation,  whether  in  the  way  of  restriction  or  of 
compulsory  expensi?,  tends  to  hasten  tlie  (leveloi)ment  of  large- 
scale  jiroduction;  a  result  which,  no  doubt,  is  in  accord  with 
the  general  trend  of  modern  industry,  yet  is  nut  welcome  to  most 
persons  who  have  at  heart  plans  of  this  kind  for  social  reform. 

A  consideral)le  proportion  of  mishaps  are  not  provided  for 
by  insurance  via  the  employers.  Accidents  to  independent 
artisans,  to  those  in  the  service  of  petty  em|)loyers  exempted 
fro'i  t' ••  general  system,  most  of  all  accidents  not  occurring  in 
the  course  of  w«)rking  operatioi  •.  are  nt)t  included.  It  is  pos- 
sible and  d<  "-iiljle  to  give  an  opporttuiity  in  some  of  these 
cases  (to  iiiu  j  endent  artisans,  for  example)  to  join  of  their 
own  volition  the  insurai  '  system;  but  unfortunately  this 
op|)ortunity  is  likely-  to  l)e  availed  of  only  in  a  small  i)roportion 
of  cases.  A  large  pla<'e  is  still  left  for  private  charity  and 
public  poor  relief. 

§  •\.  Insurance  against  sickness  is  as  feasible  as  insurance 
agaiust  accident.  It  is  even  more  fejisible,  since  longer  oltserva- 
tion  has  Miinilird  more  adequate  tiata  as  to  the  fr«>cpiency  of 
illiH'ss  ill  gnat  modern  communities,  and  as  to  its  gn-ater 
frequency  with  advancing  age;  while  the  progressive  gain  in 
ways  of  healthful  living  hiis  introduced  a  factor  of  safety  which 
is  not  found  in  accidfiil  insurance, 

Saving  again^t  a  riiiny  day  a  rough  sort  of  in,Hurance 
again.st  illness  as  well  as  other  mishaps  is  connnon  anumg 
the  well-to-do  and  tlie  lower  middle  i\h>*h,  \\\  the  latter  class, 
anil  among  the  skilleil  artisans,  there  has  been  a  consideralih- 
dt'velopment  of  iti-^urance  proper.  The  Krientlly  Soci«'ties  uf 
*'r';i«  Hri«;ii?i  \h-^  <>•!:!  ImUhw^,  thr  KunntrfTt,  and  t.thrr 
im|K>rtaiit  association-^      have  -arried  on  insurance  against  ill- 


WORKMEN'S  INSURANCE.    POOR  LAWS 


329 


ncss  on  a  large  scale.  Branches  or  outgrowths  from  them,  and 
imitations  of  them,  have  done  the  same  thing  in  the  United 
States;  and  there  are  some  associations  of  this  type  in  most 
countries.  Tliey  provide  commonly  against  disaliility  of  all 
sorts,  whether  the  result  of  illness  or  of  accident.  The  same  is 
done  by  th(!  British  trade-unions,  among  whom  the  benefit 
sy.stem  has  an  estal>lished  ami  important  part,  including  sick 
pay  as  well  as  trade  benefits  (strike  i)ay  and  the  like).  It  is 
true  that  the  premiums  or  dues  of  all  these  organizations  an> 
commonly  inadetjuate.  They  promise  more  for  a  given  weekly 
premium  than  they  are  able  in  the  lon«  run  to  furnisli.  Like 
the  "fraternal"  life  insurance  organizations  which  have  had,  and 
still  have,  such  a  vogue  in  thi>  United  States,  they  undertake 
to  pay  amounts  greater  than  their  dues  warrant  them  in  under- 
taking on  sound  actuarial  iirinciples.  None  the  less,  and  not- 
withstanding frequent  collapses,  they  have  done  great  service 
in  mitigating  the  hardships  from  illness  and  conseipient  loss  of 
earnings.  Their  serious  and  irremedial)le  defect  is  that  they 
reach  only  a  class  comparatively  prosi)erous,  —  tradesmen,  per- 
sons on  steady  salaries,  skilled  arti.sans. 

It  is  this  failure  to  n'ach  the  great  ma8.ses  of  the  people  that 
led  the  (ierman  statesmen  to  adopt  the  compulsory  (and  ther(<- 
fore  universal)  system  for  sick  insurance  as  well  as  for  other 
forms.  No  other  metho<l  will  l)ring  relief  with  certainty  to 
those  needing  it  most.  The  (W-rman  law  of  1883,  the  first  in 
time  of  this  great  si>ries  of  measures,  established  association-, 
commoidy  organized  by  lo<-ality  (one  for  each  town  or  rural 
district),  in  which  all  workmen  are  insured  against  sickness. 
Contributions  are  payal'le  by  em])loyers,  whose  obligation  to 
pay  is  fixed  l>y  the  act  of  employment;  but  they  may  <l<'diiti 
two  thirds  of  the  amounts  from  the  stipulated  wages  (the 
ren\aininK  third  l)einK  a  charge  on  the  employer  himself).  The 
workm.'iM  gets,  wliile  ill,  one  half  his  us\uil  wages,  and  in  addition 
free  medical  treatment  ;    in  ea.se  of  need,  ho<pitiil  treatment.' 

i>(  illii.w  iliiriiil  lln'  fiMl  iwrntv-ix  w<<\*  (one   liilf  «1  u  vi<r)       "nl'    if  'lif* 


M 


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330 


PROBLEMS  OF  LABOR 


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The  ramifications  and  details  of  the  system  are  carefully  workcfl 
out ;  they  call  for  an  enormous  and  skillfully  developed  organi- 
zation; they  secure,  for  practically  every  person  employed  at 
wages,  a  suflicieiit  provision  in  case  of  illness. 

The  (|uestion  of  principle  presents  itself  somewhat  differently 
in  this  case.     Illness  may  l)e  shammed;    miiliiiRcring  is  a  dear 
poss'l»ility.     For  many  a  laborer  half  pay  and  no  work  make 
an  attractive  combination.     The  administration  of  any  system 
of  sick  insurance  hence  calls  for  watchfulness.     The  Friendly 
Society,  whose  local  lodge  is  made  up  of  a  comparatively  small 
numlier  of  persons  known  to  «'ach  other,  can  supervise  its 
benefits  without  cumbersome  nuichinery  and  yet  with  suffi- 
cient checks.     A  visit  from  a  committee  of  members  attests 
sympathy,  and  at  the  saujc  time  secures  an  inspection  of  the 
invalid.    The  system,  though  not  without  opportunity  for  fraud, 
yet    has    a   (luasi-automatic    safeguard    against    n\alingering. 
The  same  is  the  situation   where   trade-unions    provide    sick 
benefits.     Hut  a  great  compidsory  system,  in  whidi  thousands 
of  persons  (as  in  a  city)  are  insured  again-^t  sickness,  calls  for 
the  most   watchful  management,    -  i)hysicii',ns'  visits  and  re- 
]'  rts,  elaborate  records,  systematic  supcrviNJon,  more  or  less 
of  red   tape.     If  badly   administered,   it   's   likely   to   become 
demoralizing  to  the   recipients  of  aid,   an!   in   tiic  end   niore 
harmful  to  them  than  complete   iiidilTercnce   an<l   abstention 
frotii  aid. 

It  is  to  !.(<  siiid  that  no  such  evil  consriinenceH  have  appeared 
on  any  iar^ic  scaU'  in  the  (iernian  system.  True,  there  has  been 
inalmgi  ling,  and  measures  to  -tem  it  have  had  to  l>e  considered. 
Hut  on  the  whole  tlu-e  drawl)acks  have  bdn  no  greater  than 
was  inevitalile:    and  the  social  gain   has  \a  lly  exceeded  the 

o  s.  The  administration  of  the  ( Iern\an  -irk  insurance  ;ysten\, 
an  I  indee.l  of  the  wlioh'  sy-teni  of  workmen's  insurance,  has 
bifii  in  hiuh  di-gree  «'f!i(  lent.     Substantial  ttitl  to  tlu'  adliiled 

fil,ilii\  frimi  Mrriilnil  ,  M.liiri  <  tu\i.nil  »»Tiit\  nin  wiik«  ••'  ii  i''  in  ( nw  of  Inng- 
1  i.iitiiiiM  .1  iiiiil  |irr»uiimlilv  |iiriii!iiiiiit  <l|itul>ilit>  ,  iloia  llir  m  i'  liiiirry  ,i(  Bci'iilnil 
iiiiiiraiii'*'  Ihkiii  tu  aiiply. 


jm^'  v«^ao»  'Uf-vrnti.t 


TFT 


' '  \^    .,-'^J*rL 


WORKMEN'S  INSURANCE.    POOR  LAWS  331 


has  been  combined  with  safeguards,  adequate  on  the  whole, 
against  fraud.  Hardly  another  country  possesses  the  staff  of 
triiined  public  servants  needed  for  planning  and  administering 
m  vast  a  nuichinery  for  social  reform;  and  the  Germans  are 
justly  proud  of  what  they  have  here  achieved. 

§  4.  Old  age  is  a  contingency  in  this  sense,  that  no  one 
knows  whether  he  will  reach  it.  Provision  for  oM  age  can  be 
made  I)y  insurance,  and  is  so  made,  to  some  degree,  by  the 
well-to-do  through  insurance  companies.  But  even  among  the 
well-to-(lo,  it  is  not  often  nuule  systematically.  In  the  social 
tier  below  that  of  the  well-to-<lo,  friendly  societies  and  trade- 
unions  sometimes  have  a  system  of  suiierannuation  benefits; 
but  it  is  effective  only  for  an  insignificant  proportion  of  th<'if 
constituency.  Among  the  masses  of  the  population  there  is 
commonly  no  set  provision  of  ai\y  sort  for  old  age ;  and  wnen 
infirmity  comes,  the  aged  are  dependent  on  t lie  younger  genera- 
tion or  on  charity.  There  is  nothing  n\ore  pathetic  than  the 
position  of  the  workman,  skilled  or  uiiNkilled,  wiio  has  passed 
the  age  of  elluiency,  has  no  resources,  and  is  a  burden,  often 
borne  gr\idgingly,  on  a  hoii^clmlil  with  slmder  resources. 

Old-age  |M'n-<ions  are  now  provided  by  |)ublic  authority  in 
sundry  countri<'s.  The  great  (".trinin  ^v  tern  includes  them, 
and  applies  to  tliitn  rigorou>ly  the  prii\ciple  of  in.surance. 
Kn\pIoyers  there  pay  th;'  premiums,  with  the  same  arrangement 
as  i'"  sick  insuraiu'f  for  diducting  from  wages  part  of  what  they 
advance,  ()nt>  h.alf  »if  thr  premiums  can  be  so  deducted,  tha 
other  half  remaining  as  a  charge  on  the  employer,;  while  a 
fixed  sum  (of  .'•()  mark-  annually)  w  contriliut.'i!  toward  each 
pension  liy  the  Kinpire.  tliat  \<.  l)y  tin-  taxpiy<  .  The  amount 
of  the  premium-i  due  fur  each  workman,  and  the  p(  nsiivn  pay- 
able to  him,  vary  a.cordinj;  to  hi-«  wag«'M.  Tliis  system  re<|uires 
an  enornious  amount  of  bo..kk(-eping,  an  enormou-i  iMVi'stment 
of  accumulating  fim.l-,  and  very  expen-ive  ad'Miiii-lr.ition. 
l'rolta!ily  it  is  unni'cr^arily  cunjbrous.  Mud,  >>impl<  r  i-  tlu» 
•.»!«•.!!  of  ffivimr  to  i>v<'r\  vorkman  or  to  rvf-ry  i\i  cily  workman, 
once  for  all,  from  pulilit   ftmds.  a  jH'usion  on  i  aching  a  given 


1 


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332 


I'llOllLEMd  OF  LAIiOll 


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age  limit.  This  is  what  is  done  in  the  English-speaking  coun- 
tries  which  have  established  old-age  pensions,  —  in  (Jreat  Britain 
herself,  ami  in  Australia  and  New  Zealand.  In  all  of  these,  to 
he  sure,  the  pension  is  sul>ject  to  reduction  according  to  the 
applicant's  lund.  Only  those  having  no  other  income,  or  but 
a  slender  income,  are  pen.sionable ;  and  in  the  Australiiir.  states 
there  is  a  restriction  also  for  those  who  have  some  accumulated 
means.' 

Old  age  cannot  be  shammed ;  so  far,  an  old  age-pension  can 
lead  to  no  demoralization.  But  it  is  maintained  that  it  will 
discourage  thrift,  since  it  takes  away  the  incentive  to  make 
indepcn<lent  provision.  Unfortunately,  there  is  in  fact  no  ap- 
preciable amount  of  thrift  to  be  discouraged,  loa.st  of  all  among 
the  great  mass  of  manual  workers.  They  exercise  no  thrift 
and  make  no  provision,  and  they  are  not  likely  to  do  so.  Some 
small  accmnuhition  of  capital  fumls  there  may  be  on  their 
part;  and  it  is  jirolialtly  unwise  to  make  such  accumulation 
a  bar  to  a  pension,  i>r  a  ground  for  reducing  the  amount  of  the 
pension,  as  is  done  in  the  Australian  states.  The  British  regu- 
lations are  in  this  regard  l)et(er,  in  that  they  make  the  posses- 
sion  of  an  income  alon-   (not  that  of  a  principal  sum)  a  ground 

'  riic  niiixinium  iirimioii  uhliiiimMi'  in  (icrmaiiy  is  41.'>  marks  a  yoar.  Tlio 
Hriliali  pi  iisiini  (iiviiilalili-  Uir  Wdincn  ii.i  wril  uk  iiirii)  in,  umlcr  thu  art  of  I'.HIS, 
5  HliilliiiRs  |irr  week  fur  tluwf  wliiwo  iiicoiiii'  frutii  oIIht  sourocs  dm-s  not  rxrroil 
111  kIiiIIiiik^i  It  wrrk  ,  it  (liiiiiniHiii'ii  as  othiT  iiironii-  iiiiTi'itwit.  Tlir  iiiiixiniiini 
IM'ii.-iiiii  ill  Niw  Zialmiil  is  t'ls  |mt  yciir ;  itmt  in  Nrw  .Hiiiith  Wales  wiis  I'JO 
por  yrar,  in  Virluriii  S  iiliilliiiuK  n  wii'k.  \irtiially  tlip  sniiK'  ratfH  liuvr  Imth 
ni:iiiil:iiin  il  in  tin  i>|il-ii|ti'  |>i'ii»ii>ii  ."yHtcni  i-MtuliliHlinl  for  tin-  Australian  Ciini- 
iiiDiiwiiilili  in  rtil'.i  {'111'  uKr  at  Hliicli  tlir  rinlit  tii  ii  |ii!i»ion  imrui's  is  70  in 
(iirtiiiiiiy  aii'l  <ii'''it  Hiitaiii,  (i.'i  in  AnnlriliiMiiL 

I'mlir  till'  Hrili.tli  ^vnli'iii.  as  Hiliipli'il  in  I'.IH''.  no  imjihioi;  is  pnyii!.li'  to  a 
pirson  liavinit  an  iin'iiiif  of  I.MIJ  ii  yi'.ir,  iiml  tin'  |irimioti  is  sniijri  i  to  prii- 
uri'si<ivr  riilii'iion  %\liirr  iiiinnii-<  iin-  lii'twrrn  tJl  iiinl  I'llJ.  Tliiwc  wlios<> 
ini"inrs  from  nilifr  -.oiirn  m  :ii"  L'Jl  or  Iiwh  ri'irivn  tin-  full  pi  M>ion  of  5  shilliims, 
will  lln-r  till'  iiiri'ini'  Ix'  frmn  invi'stcd  fiuuis,  annuities,  friendly  bii>  icty  lunifits, 
or  iillii  r  soiiree 

It  shoiill  Ih'  uoIimI  that  tlie  (irrninn  piiiKions  are  paiil  not  only  iti  ease  if 
iilil  aiie,  hut  in  ease  of  |H'rtnaiienl  iiillrmity  ;il'<o.  'Die  niitnluT  of  tlie  infirm  to 
wlioiii  pi  iMioiis  are  p;iiil  tins  proveil  to  lie        apparently  contrary  to  expei  latloii 

inlli'h  III  exresM  of  I  ill-  iiiiiiiIm  I    hi   Un-  ;iU'  'i.        rile  •Millie    "iiieMiioiln  of  piilliipiu 

nrixe  I  nnierninic  iHith  Mutn  of  anl.  with  only  tlie  .litferenee  that  frmud  needs  to 
lu'  ttuatili'il  aiain.  t  inore  i  un  full>  ill  •  u^es  of  allegeil  itiflrtnity. 


mmi 


WORKMEN'S  IN>sURANCE.    POOR  LAWS 


333 


for  reducing  or  refusing  a  pension.  The  rn'rniau  plan,  being 
one  of  insurance  strictly,  i)ays  no  attention  to  any  income  or 
property  which  the  claimant  may  have.  He  ii^ts  iiis  pension 
a.s  matter  of  right,  in  virtui'  of  the  premiums  p;!!  I  on  liis  account 
through  the  preceding  years;  and  anytiiiaji;  he  h:us  done  for 
himself,  in  the  way  of  savings,  inures  to  his  Ixriefit  without 
diminution  of  the  jx-nsion.  But,  to  repeat,  voluntary  provision 
for  old  age  is  a  negliglMe  element.  If  tliere  were  such,  it 
might  be  discouraged  by  old-age  pensions ;  but  virtually  there  is 
none. 

It  is  a  fair  questiim  whether  the  state  does  not  do  as  much 
as  may  be  in  the  long  run  expeilient,  l)y  simi)ly  providing 
opportunities  for  old-age  insurat\ce.  Such  was  the  policy  long 
followed  by  France,  though  superseded  v(>ry  lately  (1010)  l)y  a 
compulsory  sy.stem  similar  to  that  of  (Jermany.  The  French 
government  long  maintained  a  pul)lic  "cais-c  dcs  retraites"  in 
which  any  one  might  insure,  and  to  whose  pensions  the  govern- 
ment itself  added  one  third  by  way  of  sul«-idy.  The  state  of 
Ma.ssachusett8  has  recently  (lOOS)  enacted  legislation  by  which 
the  savings  banks  may  ))rovide  old-age  iii-uraiice  under  pulilic 
HUiMTvision.  Whether  all  that  may  lie  exi)ecte(|  of  the  state  is 
thus  to  furnish  facilities  cannot  be  s(  tiled  i>y  any  simple  fonnula. 
The  answer  nmst  de|K'nd  largely,  also,  on  one's  lioix's  tw  to  the 
future  of  workingmen  under  the  regime  of  i)rivate  property. 
There  are  tho,se  who  look  forwanl  to  a  steady  improvement 
in  the  welfare  of  the  mas,ses,  and  to  a  growth  (»f  inteH'.gent  fore- 
thought 'imong  them.  Such  iM'rst)ns  b»'lieve  that  llu>  old-age 
problem  will  take  care  of  ilself ;  |)artly  because  provision  will 
Im?  made  by  thrift,  partly  because  children  will  ln'  better  able 
to  support  their  aged  parents.  Hut  the  outlook,  whetlur  for 
foresight  or  fi>r  iimch  ampler  means,  is  certaiiily  utipromi'^ing 
for  the  visible  future.  The  French  voluntary  svstem,  thouiji  in 
operation  for  half  n  century,  aci-ompli-hed  \iitu.dly  nothing, 
HO  far  a«  it  was  really  voluntary.  The  only  per-'Hi .  whom  if 
reiM'hed  were  public  employees,  and  workmen  insured  in  bloc 
by  ijoine  private  emphiyt-rs. 


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334  PROBLEMS  OF  LABOR 

Those  who  favor  universal  old-ago  pensions  are  influenfed 
not  only  by  the  growing  strength  of  ultruisni,  but  by  the  belu-f 
that  such  aid  does  not  really  discourage  thrift  or  indepeuilence. 
It  meets  a  need  whieh  all  know  to  be  inevitable,  but  wh.eh  few 
provide  for  until  it  is  nearly  on  them.     Ol.l-age  pensions  are 
fumiliar   for   so.ne   persons   of   the    comparatively    well-to-do 
classes,  such  as  teachers  ami  public  olhcials.     Thes(>  pensions 
are  not  fouml  to  discourage  thrift  or  undermine  character,  and 
they  prevent  much  anxiety  a.ul  suffering.     Wl>y  should  there 
not  l)e  a  similar  bah.ice  of  good  in  the  case  of  aged  workmen  . 
Obviously,  a  svstem  of  »)ld-age  pi-nsions  nmst  cut  ad  a  very 
heavy  finan<-ial  l>urden.     Wlu-re  the  provision  is  made  once  for 
all  by  the  state,  the  neetled  sums  must  be  got  by  taxation  ;  and 
the  ilifhcultv  of  getting  the  money  is  often  regarded  as  an  in- 
superable ol)stacle.     But,  as  in  all   otlier  matters  of  public 
expomhture,  the  .piestion  here  is  not  whether  the  community 
am  raise  th.'  revenue,  but  whether  it  really  wishes  to.     OUl-age 
pensions  in  (ire.it  Britain  were  long  oi)posed  as  linancially  im- 
possible.    Yet  (Jreat  Britain,  when  her  people's  blood  was  up 
for  the  South  African  war,  taxed  hers.-lf  without  hesitation  for 
sums  much  greater  than  any  old-age  pensions  could  require. 
When  the  |)lunR.'  to  a  p<-nsion  syst.Mu  was  finally  made,  the 
needed  money,  though  gru.iged,  was  not  impossible  to  i)rovide. 
If   the   impulse  of   sympathy   were  as  strong  as  the  ancient 
and   brutal  fighting  instinct,  we  shovil.l  hear  little  of  linaneial 
obstacles  in  the  way  of  schemes  for  far-reaching  social  improve- 

meiit.  . 

$  5.  In  the  I'nited  States  tlie  whole  niovenunt  for  working- 
men's  insuran.e  ..r  iwusions  has  made  lilUe  hea.lway.  The 
Bituati.m  is  in  strikiim  cnulra^t  with  that  in  llio  other  civihzed 
countries,  great  and  Munll.  KNewhere  there  is  unceasing  dis- 
cussii.n  <.f  the  ways  ..f  ivlief  by  \m\,\u-  action,  and  steady  progresH 
in  legislation.     In  ihi^  <'..unlry  w.-  are  as  backward  as  in  many 

■  I      f    -        w.- <   «.»  (l.Hi.r  our- 

(Hlicr   maiier»  ol    .-.«;;,!   nluriii,      itt:'.:- -" 

Helves  that  our  con.lilu.i.  is  a  superior  one,  and  that  we  are  not 

,..,„lron(ed  witli  the  same  M.cial  and  industrial  evil>  as  oMer 


WORKMEN'S  INSURANCE.    POOR  LAWS  335 


countries.     But  the  superiority  is  only  one  of  degree,  and  no 
longer  a  great  one  at  that.     The  need  for  amelioration  is  hardly 

less. 

So  far  as  provision  for  aecident  goes,  our  case  is  wretihed. 
There  is  supposed  to  l)e  a  lial)ility  on  the  employers  for  injuries 
oreurring  to  workmen  in  the  eours(>  of  tlieir  emi)loyment.     But 
the  lial)ility  is  so  hedged  in  by  sundry  legal  limitations  (vary- 
ing according  to  the  judicial  decisions  and  i\\v  statutes  of  tlie 
several  states),  and  so  Ix'sct  with  uncertainti(>s,  that  it  hrinsis 
a  provision  only  in  a  small  minority  of  crises.     Most  cases  are 
settled  out  of  court  by  a  compromise  between  l!ie  parties,  with 
outcomes  varying  acconhng  to  the  helples><ne«s  of  the  victim 
and  the  astuteness  of  em|)loyers'  counsel.     When'  cases  get  into 
court,  the  (luestion  whether  the  workman  shall  get  con\pensa- 
tion  depends  on  the  lottery  of  the  suit  at  law  and  the  trial  by 
jury.     Senii-disrei)utal)li'   lawyirs  egg  on  the  inj\ired  man  to 
bring  suit,  and,  if  successful,  retain  for  themselves   the   larger 
share  of  the  thunages  awarded.     On  the  other  hand,  the  em- 
ployers commonly  insure  in  casualty  companies,  which  defend 
the  suits  and  take  advantage  of  every  legal  device"  forwarding 
off  a  judgment.     The  lottery  o<casionally  bring'^  a  prize  to  an 
njured  laborer,  in  the  shape  of  a  heavy  lump  sum  in  damages. 
This    '.rt  of  prize  blinds  the  workmen  at  Inrg.'  to  the  immensely 
greater  number  of  cases  in  which  nothing  is  got.     They  over- 
estimate the  prizi-,  just  as  they  underestinuite  the  chance  of  in- 
jurv  in  dangerous  occupaf  i<.ns.    In  its  general  outcome,  the  situa- 
tion illustrates  strikingly  ttie  posMbilities  of  waste  in  the  indi- 
vidualisti.-  ^v-^fem.     Most  of  the  energy  of  those  cnguged  in 
the    .lisposal    of    acident    ca^'s       judges,    jurymen,    lawyers 
casualty  jniiiuigers       is  Mniply  unproductive  of  social  gam. 

Though  both  workmen  and  cmiil.iycrs  have  hitherto  oppo-ed 
the  substitution  of  systematic  and  e(iU;d  provision  for  tiie  un- 
certainties of  the  present  law  on  employers'  IJMbility,  opinion 
!M  r.'ipidly  c!>un2i!>.<r.  ai^l  some  more  i  ilion.d  sy^teni  is  likely 
to  be  a.lopte.l  by  our  states  before  lo.cr  I'robably  tlu-  i:nglish 
mo.l.-l  will  be  followed,  since  this  entaiU  the  l.!Ht  administra- 


ul 

^1 


!i 


C^ 


>. 


ill 


1,1 


I 


'»■»•■?  arK  '^A««i.«K1»<I«a(  •«EF.>  rZSHMHD.IAvu'll^HS 


336 


PROBLEMS  OF  LABOR 


tion  and  supervision.    Such  a  scheme  of  compulsory  insurance 
as  the  German  seems  quite  beyond  our  political  capacity. 

The   only   systematic   provision   now    (It)    1)    made  in  the 
United  States  on  a  large  scale  is  by  some  of  the  great  railway 
companies  through  their  relief  departments,  in  which  the  prin- 
ciple of  insurance  is  applied  not  only  to  i-ccident,  but  to  sickness 
and  old  age.     These  departments  are  not  regarded  with  favor, 
it  is  true,  by  most  of  the  workmen.     The  funds  are  secured 
chiefly  by    deductions  from    their  wages,  even  though  with 
substantial  contributions  from  the  companies  also;   and  mem- 
bership, while  supposed  to  be  voluntary,  is  apt  to  be  virtually 
itnposed  upon  the  employees.     None  the  less,  these  relief  depart- 
ments represent  a  vast  improvement  over  the  ordinary  situa- 
tion.    Railway  emplojinent,  especially  among  the  trainmen, 
is  highly  hazardous.     In  1907,  for  every  125  trainmen  employed, 
one  was  killed,  and  for  every  8  employed,  one  was  injured,  — 
a  shockingly  heavy  toll  of  suffering,  and  pri>bably  one  need- 
lessly heavy.      Assured  provision  for  the  resulting  mass  of 
human  wreckage,  by  whatever  process  secured,  is  a  great  social 
gain.    None  the  less,  this  form  of  insurance  can  be  regarded 
only  as  an  installment  toward  a  better  system,  which  should  be 
universal  in  scope  as  well  as  certain  in  result. 

Insurance  against  sickness  is  carried  on  in  the  United  States 
through  a  multitude  of  frii'n<lly  societies  (as  they  would  be 
called  in  (ireat  Hrit.iiii),  by  no  means  sufficient  in  number  or 
in  permanence  to  meet  the  needs,  yet  helpful  as  far  as  they 
go.  A  compulsory  and  universal  system,  with  its  ne<'d  of 
elaborate  checks  ami  skillful  administration,  is  even  more  out 
of  the  (pieslion  tli;iii  it  is  for  accidents;  at  least  for  any  period 
in  llie  future  or  for  any  political  and  social  organization  which 
we  can  now  forcMt  .  In  the  fiel<l  of  social  reform,  as  in  so 
many  other  (iilds  of  p(WMl>le  legislation,  the  dispersion  of 
functions  under  otir  politicnl  system  brings  serious  obstacles. 
Tlir  iiJitioiKii  KoViriiiir  i:f  laekn  nmHtitutionsd  pnwor.  The 
several  states  camint  act  in  unison,  and  yet  are  deterred  from 
proceeding  separntdy  by  inuliial  fears  and  jealousies.     Even 


-smrnesrai 


IT 


WORKMEN'S  INSURANCE.    POOR  LAWS  337 

more  serious  obstacles  arise  from  the  general  political  and  social 
conditions, -the  absence  of  permanent  trained  officials,  the 
vacillations  of  democracy,  the  distrust  of  public  mechanism, 
the  pervading  and  partly  justified  optimism.  It  is  probable 
that  in  the  course  of  time  this  general  situation  will  alter.  The 
need  will  be  felt  of  systematic  assumption  by  the  state  of  large 
social  undertakings.  But  hi^^lory,  though  it  seems  to  move 
faster  than  it  did,  still  moves  slowly.  Barring  some  unexpected 
outburst,  a  long  time  is  likely  to  elaps(>  before  systematic  work- 
men's insurance  in  any  form  Ix'comes  part  of  the  legislative 
system  of  the  United  States. 

§  6.   Unemployment  presents  probl.'ms  even  more  difficult 
than  accident,  old  age,  and  sickness. 

Socialists  like  Marx  and  Rodbertus  contend  that  a  large 
reserve  of  unemployed  workmen  necessarily  comes  into  being 
under  the  capitalist  system.     In  answer,  it  may  be  maintained 
that  a  steady  supply  of  unemployed  laborers  tends  to  bring  its 
own  remedies;  it  brings  a  competition  for  i^lac.s,  a  bidding  of 
Ialx)rer9  against  laborers,   a   readjustment   of  terms  between 
employers  and  emi)loyees,  and  the  final  attainment  of  a  stage 
of  equilibrium  when  all  will  be  absorb(>d  in  industry.     As  a 
matter  of  abstract  reasoning,  this  is  more  consistent  an<l  logical 
than  the  socialist  attempt  to  prove  that  continuous  unemploy- 
ment .)n  a  large  scale  is  inevitable.     To  put  an  extreme  case, 
if  one  half  or  one  quarter  of  the  total  number  of  laborers  were 
long  unemplov.'<l,  it  is  .-ertain  that  readjustim-nt  wouM  take 
place,  by  low-red  wages  and  probably  altered  industrial  arrange- 
ments;  an.l  befon>  long  there  would  be  diminution,  and  even- 
tually (supp..sing  the  process  to  work  out  its  results  without 
check  to  the  end)  disappearance  of  unemployment. 

But  all  reasoning  that  attempts  to  show  how  unemployment 
tends  to  bring  its  own  rem.Mly  assumes  s.-ttlc.l  .oixiitioas  of 
industrv,  -  the  absence  of  frieti.m  an<l  transition  an-l  irregu- 
laritv.  Such  nmditions  never  .'xist  in  th.<  act  umI  worM,  and  never 
will  exist,  unless  indeed  under  a  rigid  socialist  r.'-gime.  An  auto- 
matic adjustment  of  the  supply  of  labor  to  tho>e  conditions  under 
vol..  u   -  ^ 


ill 


if 

l! 


'     \ 


338 


PROBLEMS   OF  LABOR 


it   i ';' 


hi   I'l 


v.-hioh  all  shall  bo  omployt d,  works  out  in  fact  only  as  a  rough 
approximation  or  tendency;    like  tlic  temlency  of  imports  to 
balance  exfjorts,  of  prices  to  conform  to  tlif  quantity  of  money, 
of  the  earnings  of  individuals  to  be  in  proportion  to  their  eiJi- 
ciency.     In  the  actual  world  there  is  but  a  loose  conformity  to 
these  lon^-run  tendencies.    So  far  as  unemployment  rocs,  thouj;;h 
it  is  true  that,  tln'  j^n-ater  its  extent,  the  stronger  are  the  forces 
which  tend  to  make  it  il   uinish,  there  are  abundant  causes  for 
its  being  a  continuing  phenomenon.     The  steady  progress  of 
invention  aad  in\provement  brings  shifts  in  the  employment  of 
labor ;   at  any  given  moment  a  certain  proportion  of  men  are 
being  displaced  in  one  industry  and  are  not  yet  absorl)ed  in 
another.     The  n.tlessness  of  the  workmen  themselves  —  pro- 
moted as  it  is  by  the  monotony  of  factory  work  -  is  another 
cause  of  shifting.     The  periodic  maladjustments  of  imlu<try 
and   tlie  recurrence  of  stages  of  depression  arc  a  great  and 
calamitous   cause   of   unemployment.     Similar    iu   elTect,   and 
more  continuously  in  operation,  are  the  sea-onal  ox-illations. 
These  are  sometimes  inevital)le,  as  in  the  work  of  the  harvt    ts. 
Often  they  are  not  inevital)le,  liut  due  to  the  mere  crudeness  of 
our  organization  of  production  and  exchange.     In  such  indus- 
tries as  tile  making  of  boots  and  shoes,  clothing,  stni  v  hats, 
and    tiic    like,    there    is  no    inluTcnt    reason    why    the    work 
should   not   be  evenly  distribut<  il  through  tlie  year;    but   in 
fact  liu.>y   seasons  are  followed  l>y  Aiwk,  and   overtime  work 
by  unt  iiipliiyment.     Casual  and  irregular  lal)or  is  sometimes  in- 
evit!d)le,  as  in  loading  and  uidoading  freight  from  vessels  and 
railwu\    ;  and  it  is  freipient  i-ven  win  !■•  not  inevital)h',  liecause 
many  «'n!i)loyer:  arc  di- posed  toutilizi'  casuid  labor  rather  than 
take  the  trouble  of  arranging  for  a  periuaient   stall.     So  con- 
stantly are  the-c  various  .vmsi-H  at  work  that   nonempio merit 
is  iiM  UMi'casiiigly  recurring  phenomenon,  and  in  that     rnse  a 
permaiK  lit   one. 

.\!;y  i:u{iind  of  iiiriinuife  for  equu!i^i:!U  th*-  irp-jr-'-riti'^a, 
l>resents  yome  obvioii-  dilliculties  of  administration.  The  '•'•- 
n'gularities  are  of  a  sort  which  do  not  clearly  olfK't  each  other 


I 


WORKMEN'S  INSURANCE.     POOR  LAWS  339 

in  the  long  run,  like  the  chances  of  death  and  old  age.  They 
are  therefore  susceptible  of  actuarial  treatment  only  with  a 
very  wide  margin  of  "loading."  That  they  vary  from  occupa- 
tion to  occupation  is  not  so  serious  a  difficulty.  Insurance 
against  unemployment  would  doubtless  have  to  be  organized, 
like  insurance  against  accident,  on  the  basis  of  occupations, 
and  with  differences  of  rates  according  to  the  varying  risk  of 
unemployment. 

All  such  difficulties,  however,  are  slight  in  comparison  with 
the  fumlamental  one:  how  prevent  an  unemployment  benefit 
from  demoralizing  the  recipient?  If  all  men  were  eager  in  the 
search  for  work,  relief  in  case  of  unemployment,  whether  by 
insurance  or  any  othiT  method,  would  be  a  c(jmiiaratively 
simple  matter.  But  for  most  men,  assured  support  until  a 
job  is  found  makes  it  too  probable  that  the  job  will  not  be 

sought. 

The  only  method  of  insurance  that  has  had  promismg  re- 
sults is  through  trade-unions.     The  strong  British  unions  offer 
an  out-of-work  benefit  (not  to  be  confoundea  with  their  strike 
benefit)  which  has  been  administere.l  successfully  ami  benefi- 
centlv  for  many  years.     It  is  con-luctcMl  under  con-litions  that 
go  far  to  prevent  abuse.     The  ..fficers  and  oth.-r  Tuembors  of 
the  local  union  know  what  is  the  stat.>  of  trade  in  their  <listrict. 
what  are  the  ii.is>ibiliti.s  of  (>mpl.)yment,  what  the  spirit  and 
habits  of  the  recipient.     They  are  watchful  against  fraud  upon 
the  union  funds.     Tliey  can  not  only  give  out-of-work  pay,  but 
make  sure  tliat  all  avaiiai-le  ..i.portunities  fur  getting  work  are 
utilized,  an.l  that  l,enefits  cmtiuue  to  be  paid  only  so  long  as 
um-mplovm.M.t   is  in.'vitablc.     This  mo.le  of  coping  with  the 
problems  !,;i<  sc<'mcd  so  promising  that  .■xperiments  have  been 
made  towanl   utilizing   it    m   '"  •   assignment    of   uneruploye.l 
benefit  by  pul'lie  authority.     A  number  of  cities  m  Belgium 
and  elsewhere  hiiv  adopted   the   "Cihent   system"   (first   de- 
veIot)e,l  in  that  place  with  apparent  success)  of  offering  a  sup- 
plement  to   the   ti-ade-union    uiieiiiplo>e.i    bem  fit  ,     t!i<y   pay 
say  1  franc  for  every  \\  francs  allowed  by  the  union.     The 


U  I 


'I'i 


il 


I' 


i 


»"i;»'ii'i5CT!0CB»»nw»ii^»r ;'"  ,"Tir'nJ»ixvssr\ 


340 


PROBLEMS  OF  LABOR 


!     t\ 


iit 


same  system  is  on  trial  on  a  larger  scale  in  Denmark  and 
Norway.  Some  sort  of  national  insurance  is  under  discussion 
and  likoly  to  bt  put  into  effect  l)cfore  long,  both  in  Great 
Britain  '  and  in  Germany.  It  remains  to  be  seen  what  methods 
will  be  adopted;  still  more,  what  degree  of  success  will 
be  achieved.  Even  the  method  of  utilizing  ihe  trade-unions 
liiis  ol)vious  limitations.  Only  a  iiermanently  organized  and 
w(>ll-fina!iced  union  can  administer  it ;  one,  too,  that  submits 
to  insiiection  and  supervision  l>y  "=c  ruthority,  and  is  able 
and  willing  to  deal  sharply  w' 


I  mong  its  own  mem- 

!  '.I     g  classes  — 

M'v:  -  -  ''ould  be 

;  iii    .  1     iie  experi- 

i  »  with  the 

u  .'    ■  :it.-  ifulness,  the 

ges  and  yet 


i  u    w 


!■    nding  distress 
service  chieiiy 


bers.     At  best,  but  a  smnll  ;      i 
that  whicli  is  now  strongb-     .1 
reached.     The  whole  pro'  >     i    • 
mental  stage.     It  remai.i-  t.      ^ 
safeguard  of  union  obli.    • .  r 
ordinary  lal'orer  can  bt    ,  .;  ,    ■ 
remaii.  keyed  up  to  tlie  spii  ■  </. 
Public  rdief  works  are  a  tem, 
from  unemj)loymcnt.     Yet  th(y 
as  stop-gaps,  and  as  safeguards  ag.iinst  imposture;   and  for  the 
latter  purpose  they  are  of  uncertain  effect,  —  they  sometimes 
cause  imposture.     It  is  a  remnrkable  testimony  to  the  general 
effectivent   s  of  tlie  regime  of  i.rivate  industry  and  to  the  extreme 
difriculty   of  (inding   a   sul)>titute   for   the   sjnir  of  pecuniary 
iiittn  ~t,  th;it   relu  f  works  liavc  rarely  l)een  successful  in  put- 
ting uiy  c()ii-i.!erable  number  (  f  de.     ving  unemployed  at  work 
on  something  r'':;lly  worth  .v'lilc,  ;.ii.l  have  never  been  successful 
in  Mchieviiig  llii-  n-ult  for  all  the  deserving  unemployed.     It 
is  ea^y  to  dclin-  tliut,  at  a  given  jimcture,  tliere  are    oth  un- 
cMipI  'vcd  laliincr-^,  ;i,id  ;ii cds  to  be  s.iti~lie<l  for  the  co     nunity 
by  tlie  labor  of  s.un.  bo.'y.     To  bring  these  two  togc....r.  and 
i<v{  the  men  to  wurl,  .m  l!nn}i>  they  can  do  and  on  which  their 
labor  tells  to  full  advantage,  is  the  most  difhcult  ta.sk  a  public 

I  A;  t!>o?f  i>nu>'«  "•'  tliriMii'li  111''  pri  JR.  ariiK  unocment  is  mndo  of  thi-  gmit  ox- 
Vrriiii.'i'.l  wliiili  lli.'  linlisli  rv.rmiinit  pniixiwi  tn  iimk.-,  of  utirniploynii-il 
in  iiiiiK-  f'lr  (.  If  liii  (!iv:it  traliH  ir.ilc  p.  iid.iit  >if  trml'^-unioim.  ll  will  lie  the 
first  Uiriir-»iiiK'  ^yrftcni. 


WORKMEN'S  INSURANCE.    POOR  LAWS  341 


l\ 


official  can  be  confronted  with.     The  work  is  ahnost  always 
felt,  by  the  pubHc  employer  and  by  the  ai(.e  1  employee,  to  be 
perfunf  tory.     Only  where  the  simplest  and  m<  st  monotonous 
of  tasks  can  be  assigned,  —  as  wood  sawing  or  htone  break- 
ing, —is  it  possible  ♦o  provide  work  for  the  unemployed  ai-.d  to 
hold  them  to  a  fixed  stint.     Very  little  work  of  real  utility 
be  laid  out  in  this  meehanieul  way.     Most  things  worth  d> 
are  more  cuiuplex.     It  is  .lilFieult  at  best  to  find  work  that  .. 
thoroughly  worth  doing;   it  is  even  more  difficult  to  get  it  ( fti- 
eiently  done  by  relief  operations.     For  one  thing,  tlie  pow.  r  ... 
discharge  is  huking;   and  it  must  be  sorrowfully  udniitled  that 
this  power,  heartless  thotigh  it  seems,  an<l  subject  to  ii!     -e  as 
it  is,  remains  essential  for  keeping  the  onlinary  hd  -rer  steadily 

at  his  task. 

None  the  less,  public  works  of  a  kind  that  are  certain  to  be 
carried  out  sooner  or  Liter,  nuiy  I'cst   be  m  t   gciu-i  in  tinu  - 
when  there  is  speci;;i  lack  of  emi)lo\:uent.     Soiu"  i;;uiKition  f.  r 
the  recurring  stage-  of  deprosion  m;«y  'h-  fumid  l>y  nuissiug  m 
Buch  periods  settled  public  expenditmvs.     In   .a  cotmtry   like 
Great  Britain,  f«.'-  example,  the  great   industry  of  ^hipbuilding 
is  specially  sul>ject   to  lho<e  fin  tuatiiin-  wliiili,   as  we  have 
seen,  are  marked  in  the  indnstri(-  that   make  plant  and  ma- 
chinery.'    If  the  goviTument  nuist  buil  !  men-of-war,  let  it  put 
the  shipyards  to  work  on  them  in  tln.sc  times  of  det>resMon 
when     he  demand   for  merchant   .-hipping  is  at   a  standstill. 
Similarly,  a  country  in  which  r.i"     ^^s  ar.>  pul/ii.ly  managed 
may  arrange  for  new  construction  and  extension  .it  lime>  \\  !h  n 
private  investment  is  '  dling.     This  calls  fc.r  a  tirn    ti.ucl  in 
checking   the   i)ublic    exp-nditure    as   soon    a.^    private    umIm- 
takings  revive.     Many  peo],!e,  employers  and  employees  xvill 
be  certain  to  clamor  for  ind''f;nit.'  i-ontinnanee.     liven   when 
prudenlly  mana-i-d,  thi^  is  but  an  ntic  rtain  device,  ^uhyrt   to 
the  dangers  of  periunctory   public  works.     Nevertliele-s.  it   i- 
better  than  the  connem  procechiri'  of  letting  the  ru-!i  of  -pecu- 
lative  activity  reach  ;  uMic  (ijier.itions  as  .•.  ;;;i:   t  :-;;iggt'ra-.:ng 
both  the  upwunl  swing  and  the  jubsequent  recoil. 
■  Pre  n.H>K  III.  Chuplcr  -"'   i  2. 


'«  >  il 


i.M 


^,tl 


) 


i   '\  i 


342 


PROBLEMS  OF  LABOR 


Arrangemur* .,  for  spreading  information  and  increasing  the 
mobility  of  i  jorors  are  good  without  quaiiiication.  Much 
more  can  pt<i'iu))ly  1)0  done  in  this  way  hy  public  authority  than 
has  yet  Ix'cn  uicoinpHshcd.  Private  agencies  are  subject  to 
great  aliuscs.  They  find  tlio  lal)or(>r  when  he  is  least  capable 
of  holdiuK  out  and  IjaiKuining.  and  when  it  is  most  easy  to 
take  advanhw  of  his  weakness  and  ignorance.  Something, 
too,  ran  prol)alily  b«'  done  in  systematizing  the  distribution  of 
scast)nal  and  rasual  labor,  —  <lo<k  and  railway  lal>()r,  harvest 
hands,  men  engaged  in  construction  work,  dermany  and  Eng- 
land are  now  experiujenting  on  a  large  scale  wilh  labor  ex- 
changes; and  some  of  "ur  slates  are  also  coiuluiting  public 
employment  l)ur(aus.  Here,  aiiain,  the  social  ferment  is  at 
work,  and  tiie  problem  is  grappled  witli  :is  never  before.  To 
achieve  good  results  in  bringing  unempluveil  labor  to  the  plac  s 
where  it  is  wanted,  ami  to  system.itize  casual  labor,  oflieiais 
must  be  put  in  charge  who  are  capable,  well-trained,  ami  higli- 
ininded.  Such  men  are  wanted  in  every  directiotj  where  the 
'phere  of  pul>lic  activity  is  eidarf^ing ;  airl  :'•■•  success  of  all 
work  for  sodal  betterment,  mo>t  of  all  perhaps  of  work  for 
relieving  thi"  poor  and  unfortunate,  depends  on  success  in 
selecting  ami  permae.'utly  retaining  administrators  of  the 
right  -tamp. 

§  7.  Nc.  ph.vse  of  sociiil  endejivor  illustrates  more  ch-arly  the 
enntlict  Ixtwreii  sympathy  and  sober  judgment  than  the  poor 
law.  .'<ome  provi^on  for  the  relief  of  the  indigent  there  will 
idw.iys  have  to  be.  Thi-  altruistic  impidse  will  not  |)ermit 
the  very  l;i"*t  stage  of  misery  to  be  reaihed.  'i'he  vario\is 
schemes  eon-idered  in  the  precedinu;  p!lragral)lr^  even  thou«li 
c.rried  to  their  fullest  po^siliilities,  will  yet  le:ue  ii'itoiiehed 
c, i-.es  of  mi -fortune,  Jn\proviileMce,  wrefkaije.  There  will 
always  be  -ome  occasion  for  -imple  charity  ;  and  ch;uiiy  always 
runs  the  d.MMuer  of  dt  ..loridizimj  the  reripieiit. 

Some  vnrt-  of  relief  rail  be  tiven  without  "laiiger  ot  ..inning 
eharai'ter.  The  pauper  iiisai\e  win'  formerly  eareil  for  in 
!<•(  al  alm-lioii-es.  ofti  ii  ineler  wrrlrliid  fonditions.      The  bet'n- 


WORKMEN'S  INSURANCE.    POOR  LAWS  343 


way  is  to  take  care  of  them  with  reasonable  comfort  in  special 

asylums,  ailministennl  not  l)y  local  boilies,  but  by  the  central 

government,  with  skilled  supervision.     The  fcehle-mintled,  the 

blind,  the  crippled  and  <leformed,  those;  incurably  ill,  van  be 

mercifully  senrcKuted  in  the  same   way,   and   with  the  same 

certainty  that   no  one  will  l)e  tenii)ted  to  make  himself  an 

object  for  this  sort  of  charity.     It  is  doubtless  true  that  nmch 

money  and  effort   is  devoted  t(.  ttuse  distressing  cas.'s  wl.ic  h 

minht  be  turneil  with  better  rrsy\\{>^  to  work,  not  of  pallialiim, 

l)Ut  of  prevention.     Sdutols  are  more  t-ffcctive  anencies  for  u))- 

buildint?  than  hospitals.     Hut   the  a|)peal  for  aid  to  tlie  sick 

and  wretched  and  nuiimed  is  not  to  i«e  re.-isted  ;    and  it   is  at 

least  to  l)e  said  of  hospitiils  and  asylums  that   suiTerinn  can 

be  relieved  in   tiiem   without   sowing  the  seeds  for  still  more 

sufferiiiK. 

SomfthiuK  of  the  same  sort  can  be  said  as  regards  the  care 
of  ori)hans  and  of  neglected  children.  It  is  tru.-  that  there  is  a 
Malthusian  .lander  in  the  background:  m.trriaiir  and  nuilti- 
|)lication  may  l>e  ^M•lxl(•>^  if  provision  for  olisprinn  is  a.ssured. 
But.  the  (lanRcr  hanlly  exists  so  far  iis  ori)h;ins  are  concerned, 
and  is  prol)ably  nenliKil>le  ev.u  for  I  lie  diildnn  of  the  worth- 
less. The  comi)arativ(Iy  few  «liose  cliiMreu  arc  cared  ft)r  l<y 
pul-Hc  or  privat  ■  iharily  are  hardly  made  more  or  less  reckl.-.^ 
by  this  provision;  and  the  .hiMren  tlu'iuselves  liave  a  vastly 
better  chance  if  put  into  proper  iiands  at  an  early  ane.  Th.ir 
chanct ,  ii  is  true,  is  likel,  to  br  in  any  case  a  poor  «mc.  ("om- 
monly  th.-y  have  a  poor  pli\  -ieal  and  moral  inlieritaiice ;  and 
it  is  very  dilheuit  t.i  secure  for  any  eonsideial)le  nmubers  uoo  i 
environment  and  «oud  iipbrinuiiuj  by  stranners.  ibit  th^ 
children  inu-l  I'e  cnnd  lor.  lliey  cannot  \>v  left  to  -i  irve. 
iiiid  Kood  care  may  make  them  better  men  and  women. 

Ol.l-aue  pensions,  wlim  tliev  are  reidiv  pen-ions  and  are 
restri.t.-d  to  per-on-  in  i\eed,  are  virtually  a  lorm  ol  pourivjiel. 
They  simply  Ui.  !•>    tlic  none  of  pennons,  lehm  ii-l.'red  \silh- 

out  the  r.pellant    npi.anitu-^  ol   the  | r  law-.      Whether  the.v 

ran  be  made  n.p..l„lL'  and  e\en  anreea!>!c  m  this  way  w.th- 


4 

'1 


li 


344 


PROBLEMS  OF  LABOR 


out  undermining  tiirift,  has  already  been  considered  The 
balance  of  probability  seems  to  be  that  here,  a,s  in  the  case  of 
child  saving,  the  altruistic  impulse  may  be  allowetl  its  way. 

The  case  is  difTerent  with  al)le-bodied  adults.  Poor  laws, 
as  regards  these  adults,  are  the  most  dangerous  of  well-meant 
devices.  The  certainty  of  supi)ort  is  the  greatest  enemy  to 
vigor  and  independence.  The  history  of  (he  English  i)oor  law 
in  the  first  third  of  the  nineteenth  century  shows  how  an  entire 
stratum  of  the  populatit)n  (in  that  case,  nutre  es|M>cially  the 
agricultural  lal)orers)  can  be  deMioralizi-d  by  indiscriminate 
poor  relief.  While  the  only  sure  safeguard  against  pauperiza- 
tion is  a  general  feeling  of  shame  at  becoming  a  recipient  of 
relief,  such  a  public  opinion  is  itseh'  largely  the  result  of  the 
pro|M^r  administration  of  relirf. 

The  Knglish  p<M.r  law  investigators  «.f  1S;{2  lH:il,  after  sur- 
veying the  experience  of  tlieir  country  prior  to  the  great  reform 
of  that  date,  came  to  the  conclusion  that  tlic  only  safe  way  to 
administer  p<M»r  nlief  for  the  altle-boflied  was  to  concentrate  it 
in  workhouses  or  alnishou.ses.  Outdoor  relief  (that  is.  relief 
outside  th(>  almshouse)  was  to  !«•  al»»lished.  The  principle 
was  soimd  :  let  relief  l>e  made  elTective,  but  not  attractive. 
For  genera»i<ms  the  abolition  of  out«loor  aid  was  regardeil  by 
the  Knglish  as  the  only  feasiiile  method  of  carrying  out  the 
|)rinei|)le.  It  was  thought  the  m/h  (/iki  n»u  of  successful  |MH)r 
law  administration.  Hut  such  relief,  in  fuel,  never  disapi)eared 
in  Knuiaiid,  "ven  for  the  abh'-bodied.  Further  experience  and 
reflection  have  maile  it  les-^  certain  that  it  ought  to  l>e  coin- 
plet<'ly  done  away  with.  The  workhouse  it>elf  is  often  a 
hchool  of  demorali/atioii,  and  relief  in  it,  expected  to  Iw  mi- 
attractive.  (-eases  witli  lialiituation  to  be  so.  The  keynote  t»f 
moilern  charity  atiministration  is  dilTerentiation  in  ilie  treat- 
ment of  the  various  kinds  of  ne(<ly  persons.  Outdoor  rehef  i-» 
atlmitted  to  be  a  hiuhiv  d:(ii«erous  remedy,  lielter  di-carded 
entirely  tlian  u.sed  freely.  \y\.  with  due  rMiilitm,  and  i-p'-ciidly 
as  !»   means  of  tidmn  over  t>-m|»orarv  str.u!-,  it   >irrves  better 


tlian   an   mlle\il>le  alinshou.se   t.>t      .\gain,   indoor   rt 


lief. 


I.e. 


WORKMEN'S   INSIRAN'  i:.    POOR  LAWS  345 

institutional  cure,  shou!.!  he  of  va-nou*  kinilK,  diflVrent  for  the 
young  and  the  i<U\,  the  Mck  and  tlu*  wfli,  the  haVHtua",  vagrant 
and  the  workman  temporarily  in  nml  The  coinplex  proUWns 
of  charity  aiinunistration.  themsel  '>s  th<-  sul>ji<t  oi  i  ni^ge 
literature,  are  similar  to  those  of  wurHnun  s  insiirarir.-  .-wl  tu*- 
other  phase-  of  >oeial  r<fnrm.  Thcv  sh..vv  \\w  w  i.  tunn  in- 
Ihirnce  of  altruism  and  at  the  same  tiit,.'  th.-  search  f..r  risiorous 
and  far-sinhted  m-thod.  TlirouKi'  ;'ll  '■'"'-  the  -lanr  luii.l.i- 
m.-ntal  principle:  aid  the  weak  m  su.!.  uuy  as  to  stren^jtl  ■  ii 
them  permanently. 


r 


i': 


I  •  I,  < 

.1  'vf*    ■ 

K 

lit  J 


I 


I 


CHAPTER  59 

CoiJI-KltATION 

§  1.  roopcnition  nnionK  matiiml  UilumTs  was  lonR  ropinLd 
!is  tlio  most  prninisiuK  m.-aiis  of  n-acliiii'-!;  tx'tt.T  social  nmciition^. 
T!u'  prospects  of  far-rcacliiu^  .-liaiij:.'  I.y  this  luctluxl  smn  los 
fio(»(l  now  than  tlicy  (li<l  to  tiic  irouoiiiists  of  u  n,.,„Tatiou  ajio. 
Hut  the  cooperative  luovi'incnt,  uoiit  tii.-  los,  nniain^  an  im- 
portant one,  not  only  Lecause  of  its  extent  and  its  sul)stantial 
results,  l)Ut  also  l)eeause  exi)erieMce  with  cooperation  is  iu.Mruc- 
tive  as  to  the  place  of  the  liusin.'ss  man  an.l  of  Imsiness  prolits 
in  modern  industrial  develop""'"' ■ 

Tile  essetuv  of  cooperation  i>  the  -ettin-^  rid  of  the  niamiKinR 
ciuployer.  Laborers,  or  indeed  any  set  of  i)er>..ns,  whc-tlier 
laborers  or  not,  do  for  themxlves  that  work  of  plannin}r  and 
.lireclion  wl.i.  h  i-  ordinarily  done  I.y  the  l.u-iness  man.  They 
not  oidy  d<»  hi-  work,  hut  they  assume  his  ri>k-.  There  must 
he  in  any  ca-e  superintendence  and  administration;  tiiese  are 
delc;;ated  i-ntly  to  salari"d  a|re"ts,  l.ut  are  undertaken  in 
part  hy  (..nmiittees  or  olhcers  ^ervin«  frraluitou-ly.  The 
,(,operat(.r^  a-^  a  body  ttle  llu-  p-ncral  policy  and  assmne  the 
ri  Ks  of  the  undertaking  ju-t  a^  the  >tockh..lder-  do  in  a  joint- 
slock  company.  In  thi-  iast-uame.l  way,  Ih.'y  aim  to  suj)- 
plant  the  buMue-s  man  in  his  mo-t  important  uml  characteris- 
tic iui\ction, 

Coop.'ralioii  ha-  been  tried  in  ntiil  trad(,  in  credit  and 
IriMkiiii'.  o|.rralion-.  in  M.mc  plias,-  of  a-riculi ural  work,  and 
till  ill\    III      production."     Thi-  iiiimin  ii  loii   promMU  roia'.hly 

1,1    111 ,1,1    of    -licct-^  :      co.i|.r|Mlloll    ll.l-    Im-cII    mo-l    Slice-    111 

1,1    ivlail    trade.    1,  :iM     -o    III    prodmlion.      What    his    b,  mi    !'..• 
,!,..;fce    ol     ■.wvri'-,'.     III     til.-.-    sr\cral    doert  ion-,    a..  1    wh.lt    t.ie 

f\|ilaiialioii  of  liic  dilTrr.  nc.  •  '' 


COOPERATION 


347 


vt 


§  2.   Cooperation  in  retail  truilc,  or  distributive  cooperation, 
is  the  simplest  as  well  as  the  most  successful  form,     A  number 
of  persons,  workmen  or  others,  get  together,  subscribe  a  fund, 
buy  their  conunodities  at  wholi-sale,  and  distril)Ute  thesi;  am 
themselves.     Simple  as  this  is  in  outline,  the  business  «' 
ing  has  its  complexities.     CJoods  must  be  on  hand  in  con\ 
(juantities,  with  due  variety,  easily  found  for  the  cu 
those  that  become  obsolete  or  shopworn  must  not  b. 
to  accumulate;   the  preferences  and  wiiims  of  purcha 
be   humored.     The   cooper;ttive  stores   have   found 
nmst  assvune  the  outward  ai)i)(arance  of  the  ordin 
shop,   with   its  show   windows   and   i)i:icards,  decorations  and 
temptations.     At  oiu-  time  in  the  history  »)f  di>tribiitive  coopera- 
tion in  England,  it  was  tliought  possil)le  to  >.ive  rent  by  taking 
premises  on  a  i)ack  street.     15ut  it  has  been  fotuid  advis.il>le  to 
do  iis  the  private  trader  (K>es,  —  take  conspicuous  prt>miM's  on 
the   main   thoroughfares.     Thus  only   can   the   l)u^^•ila.^ers   !)(• 
etTectively  reached,  and    shopkeeping    con<luctel   ot\    a   lar-je 
scale  and  with  real  eecmomy.     Site  rent,  in  i>ther  \vord>,   has 
been   lound  to  be  not    a   cause  of  high  price,  but  a  result  of 
efliei.-nt  operatU)n ;   and  low  rent  has  not  bien  found  to  mean 
a  real  saving. 

When'  thiN  sort  of  thing  is  done  by  person-*  of  the  well-to-do 
or  nndille  cla.^s,  it  has  no  coi\^iderabl.'  social  interest.  As 
regards  the  larger  (luestions  of  .social  reform,  there  is  little 
dilTereiice  whether  a  shopkeeper  makes  his  profits  or  a  bo.ly 
of  ('(M.perators  .save  a  liil  by  substituting  for  hinj  salaried 
ugents.  This  is  all  tli.it  i^^  me.mt  l)V  sui'li  great  eooperalivr 
htor.'s  as  the  London  Army  and  Navy  Slore>,  the  Civil  .St\  i<v 
Sui)ply  .\ss„ei;,ii,,u,  and  •>tlirrs.  Tlice  excelletil  instil  ill  ions 
owe  their  siicei'ss  in  l.iine  d'giee  to  their  re(|iiireni.'nl  of  ca-h 
payments.  The  Iradilional  nialiuti-  between  lh<'  nidininv 
lOnjjIi.-h  trad.'siiian  an  I  li;  ■  well-to-do  customers  had  long  been, 
and  indeed  still  an,  ilio-e  of  >ervilily  eoinliined  with  high 
charges  on  the  IrMdisiiein's  ^ide,  and  ot  dfla\id  and  irregular 
payment  on  the  eiisluinera'  >idc  eoniliined  with  alTected  imhf- 


i    ! 


rti 


,,.wmm^,,,^_, 


348 


PROBLEMS  OF   LABOR 


I    M 


•J  J 


fcrcnco  to  the  prices.  Long  credits,  bad  debts,  high  prices, 
and  high  profits  (that  is,  large  advance  of  retailer's  selling  i)rice 
over  his  buying  price)  had  been  the  natural  consequence  of 
this  pseudo-aristocratic  reginu  .  Tiie  coiipcratois,  i)y  agreeing 
to  pay  cash,  made  i)ossil)le  tnuch  mure  Imsiiu-s -like  methods 
und  considerable  economies  as  to  bad  dclits  and  interest. 

In  the  workingmen's  stores,  however,  cimperation  lias  meant 
something  more.  These  stores  had  a  reMiarka!)le  growth  in 
the  half  century  which  elajjsed  since  the  lirst  sMiall  start  ul)OUt 
IS.")().  They  now  numl)er  thousands,  their  mcml>ers  number 
hundreds  of  thousands,  their  transactions  run  into  hundreils 
of  millions  of  dollars.  Their  influence  reaches  the  daily  lives 
of  a  very  large  jxtrtion  perliaps  tmc  half  —  of  the  working 
l)<)l)uhition  of  (Ireaf  Britain,  c-pecially  in  the  manufacturing 
rciiionsdf  the  North  of  Kngland  and  Scotland.  Their  example 
has  been  followi'd  on  a  large  scale  on  the  Continent,  and  has 

not  I n  without  its  influence  in  the  rniti'il  Slates. 

.V  type  of  tiie  workingmen's  store  is  the  Hoclulale  Kcpiitable 
Pioneers'  Society,  the  earliesi  ami  the  most  famous  of  them. 
Tlie  Hoclulale  stores,  as  tlie  workingmen's  stores  of  this  type 
li.ive  come  to  be  called,  sell  at  ordinary  or  current  ret, til  prices, 
riiey  make  no  atti-mpt  to  elTect  a  saving  at  this  first  step. 
But  periodically,  say  at  the  end  of  each  quarter,  tiiey  dividt; 
profits  am(iie.t  their  members  in  i)roportiou  to  purchases  ma<h' 
liy  thcM'.  Tlie  systetn  necessarily  involves  keeping  account  of 
llie  purchase-;  u  somewhat  troublesome  proce--,  in  which  the 
Britisli  stores  enli-t  t!ie  aid  of  the  memlxT-  themselves.  Tin 
tag-  tor,  in  verv  recent  times,  paper  or  cardlioard  slii>-l  are 
jtiven  to  meiiih.  I-  for  the  jiinouiii  «>l'  everv  purch;i-e,  and  these 
memor.iiida  are  turue  1  m  l.\  fheni  at  the  elo-i'  of  t!ie  ipiarter 
m  ordei  to  mak'    up  a  reeord  of  each  individual'-  purchases, 

Tlu~  iiriiiti-  .if  [xi-tjioiung  and  hnnpiii^  the  i)rofils  has  two 
iiilv.ani.iues  li  h:,s  (I  rlcar  linaneial  adv  intatte:  the  jjains  are 
not  diveh'd  JM-fiire  t!ie\  are  made.     Where  tl\e  !ittem|it  is  made 

to    sell    :i1     nliee    .it    lowered    price-,   ttie    iinrl<     IliaV     be    oVer-hot 

throuuh  lai'un-  tn  make  enou«h  allcvanc''  for  expenses,  (h-prt»- 


i 


COOPERATION 


349 


elation,  and  the  like.  Then,  as  has  happened  with  many 
cooperative  «'xperiinents,  the  enterprise  eventually  goes  to 
pieces.  Hut  tlie  Uochdale  i)hiu  has  a  much  more  important 
advantaj^c  than  this  financial  one.  The  rills  of  ^;iin  on  the 
several  ])un'hases,  swollen  at  the  end  of  the  ([Uirter  to  an 
appreciable  volume,  are  not  so  likely  to  lie  dissipated.  The 
chance  is  (greater  that  they  will  be  put  by  and  saved.  .\nd  the 
:  tores  themselves  offer  an  opportunity  and  even  temptation  for 
siiving.  The  dividends,  as  tlic  accumulated  |)ro(its  are  called, 
may  be  left  at  the  store  as  capital,  and  when  so  left  are  entiM".! 
to  interest.  M  tlie  very  outset  the  store  nceils  some  ca|)ilai, 
which  is  subscrilied  by  the  meml)er<  (usually  in  moih'st  sums, 
the  share  for  <'ach  member  iicin^  L'l).  But  the  dividentls, 
lari^i'Iy  left  at  the  store,  add  to  the  capital.  It  is  in  this  way 
thit  the  capital  of  the  worUinsmen's  stores,  small  at  tlie  start, 
lias  been  brought  to  p;reat  dimensions.  The  stores  not  only 
make  saving"*,  but  act  as  savings  bai\ks. 

This  insinuating  arrangement  for  thrift  is  intentional.  The 
Rochdale  store<  have  always  regarded  tliemselves  as  something 
more  than  storekeepers  and  peimy  savers.  Th(>  early  pro- 
mot  er-;  and  spokesmen  of  the  niovement  were  men  of  noble 
spirit,  and  looked  on  the  coiiperalive  store  as  l)ut  the  first 
st,i;i;e  in  a  great  woikim^inei's  mo\eiiienl.  The  liigh  expecta- 
tions uiiieh  they  .md  their  contemporaries  cherishe<l  iiave 
someuli.it  a!>ated  in  later  da.\s  ;  but  tiiere  is  >till  an  atmosphere 
of  liisfli-mi  ided  endeavor.  Tliu>  the  stores  almost  invari;ilily 
refii-'i'  to  >el|  iiii'iiir,  |li.Mi'j;h  tliis  miulit  be  a  source  of  hamUome 
prnlit.  Tins  niake  |t  <  i>\-  for  noii-members  to  join.  Strielly, 
member-'  alone  are  e'ltiileil  to  share  in  tin-  divideticls.  Miit 
non-members  are  niiru   iijlnv,'!   h.ilf  dividend  on   their  pur- 

ehase.s,  llie  iimount-^  ^.1  a!lie\ei|  bein'i  ('redlted  as  ili>lallmeiit> 
of  xiiliMTiption-  111  -liar-  u.itil  the  full  share  i-;  paid  lor  and 
compli'le  iiienilier-lii|i  o  -eiired.  Sill '^t  aiit  ill  -iini'  from 
their  prolil-  ;iie  siimiiai  -  allottel  for  ediie.itlonal  purposes 
and  the  like.  At  the  luniial  mertiii;:;;,  ispeciallv  lluwe  of  the 
general    cooperative    e.iiigre^'>,    the    cause    of    eoupiaal  i.iii    ami 


I  III 


I 


i 


I 


si 


I 


'^-H.^' 


350  PROBLEMS  OF  LABOR 

workmen s  independence  gets  encouragement  and  laudation; 
sometimes,  no  doubt,  in  empty  phrases,  but  in  the  main  with  a 
real  spirit  of  social  endeavor. 

The  causes  of  the  remarkable  succe»8  of  this  form  of  coopera- 
tion in  (5reat  Britain  are  several.     Not  lea.st  among  them  aro 
the  graeral  causes  which  l.rou«!it  abouv  the  great  progress  of 
tl,e  British  worki.ig  classes,  an.l  esp.'cially  the  upper  tier  of 
skilliul  xvork.neu.  during  the  second  half  of  the  nineteenth  cen- 
tury  •  a  progress  in  which  the  trade-unions,  the  friendly  societies, 
the  cooperative  stor.-s  have  played  their  several  parts;  while 
the  nv.rch  of  in.histrial  improvement,  under  capitalist  leader- 
ship  has  sustained  it  all.     The  re<iuirement  of  cash  payments 
has  been  an  important  advantage  to  the  stores;    another  has 
been  the  essential  weakness  of  their  f.)rmer  competitors,  the 
pottv  retail  shops      No  part  of  the  mechanism  of  the  division 
of  labor  is  so  im-fficient  as  that  of  ordinary  retail  trading  on  a 
small   scale.     At   the    same    time,   ignorance,   gullibility,   and 
shift l.ssriess  enable  this  sort  of  wasteful  business  to  hold   its 
own  with  singular  persiste.i.-e.     Tlu>  cooperative  store  means 
a    resolute    elTort    to    eliminate    as    much   as    iwssible  of  the 
waste.     As  with  most  impr..veinents,  th..  initiation  of  this  one 
in  (Ireat  Ikitain  was  due  to  the  energy  and  al)ility  of  a  few 
individuals,  -  pickcl  men  among  the  working  classes,  —  who 
,l(.vis.Ml  und  pcrf.Mtrd  the  system.     That  system  once  in  work- 
ing order,   it  was  .•o.nparatively  easy  for  others  to  imitate; 
just  as  th.  re  are  always  plenty  of  business  men  who  can  follow 
the  new  patl.-^  opened  l)y  th<>  real  lea<lers  of  industry. 

The  -Mr.(.<s  ..f  th.'  British  .•.).. perative  store  illustrates,  t<H), 
til.,  dilh.ultv  ..f  g.tting  ri.l  ..f  accustome.1  industrial  ways, 
l.iid  tl.o.mh  thrv  ti.av  b.-.  Abstractly  consi.l.T.Ml,  it  might  be 
.uppos...l  that  an  .Mitorprising  s.-t  ..f  ivtail  tra.lers  could  have 
,Mish...l  .,ut  th.-  wast.ful  ix'tly  sh..|.,  by  doing  busmess  on  a 
laru.-  M-al.'.  ..n  a  .'..sh  baM^,  ami  at  low.T.-.l  i.rices.  S«.m.-  .lis- 
pl:».'.'!ne!i1  ..f  thi-^-^.Tt  hiH.m  fact.  o.'.-urre.liut  lie  I'nited  States, 
when'  th.'  boiid-  ..I  ru^tmn  are  more  «'asily  shak.-n  off.  In 
(Jreat  Bni'.in,  and  ..u  the  outiiunt  of  Kurope,  habits  change 


i 


J 


COOPERATION 


351 


less  easily.  It  required  the  entirely  new  method  of  coopera- 
tion, with  its  appeal  not  only  to  the  purse  of  the  workingmen, 
but  to  their  sense  of  solidarity,  to  bring  about  a  more  rational 
and  economical  organization  of  retail  trade. 

For  many  years,  the  cooperative  store  movement  in  Great 
Britain  has  been  so  strong  as  to  go  on  largely  by  its  own  im- 
petus,  yet  possibly  with  something  of  artificial  stimulation. 
The  traditional  rate  of  dividend  on  purchases  (something  like 
10  per  cent -on  the  average,  2.s.  (W.  in  the  p..  ,    1>  has  prob- 
ably  been  maintained  in  part  by  keeping  prices  higli,  and  not 
solely  by  continue<l  saving  as  conipannl  with  current  retail 
practises  and  prices.     The  cooperatois  seem  willing  to  i    y  a 
little  more  in  order  to  get  their  accustomed  dividnid.     How- 
ever this  may  be,  the  cooperative  stores  are  an  established  and 
important  element  in  the  industrial  system  of  (ireat  Britain. 
They  have  done  much  to  promote  the  material  welfare  of  the 
workingmen,  and  something  to  train  them  in  ways  of  common 

action. 

On  the  continent  of  Europ(>  there  has  also  been  a  consider- 
able d(.velopment  of  distributive  c().)peration.     As  in  CJreat 
Britain   it  has  been  partly  mid.lle  class,  and  so  uninteresting; 
but  partly  working  class,  an<l  so  more  sig>.iHcant.     1  he  greatest 
growth  of  the  workingmen's  stores  has  been  in  Germany    md 
Belgium,  wh.'re  the  movement  has  been  closely  allied  with  thai 
for  socialism  ;  although,  as  will  presently  be  shown,  the  cooper- 
ative an.l  socialistic  i.ieals  differ  in  essential  points.     The  op- 
portunitv  for  disphwing  wasfful  retail  trading  seems  no  less  on 
the-  Continent  than  in  Kngland.     If  as  yet  it  has  on  the  whole 
been  much  less  availed  of,  the  explanation  pr.ibably  is  that  the 
workingmen  of  the  Co.itinent   have  felt  only  in  very  r.'ce.it 
years  the  stir  which  r...ised  the  English  half  a  century  .-arh.-r. 
The  progn'ss  of  this  lalH.r  nioveni.'ut,  as  of  others,  has  ot  late 

been  rapid.  .     . 

In  the  Unile.l  Staler  distributive  cn6i)erati.m  lu.s  never  liaU 

the  same   sort   of   growth   or   importauc,-.     TIktc   have   been 

many  atvempts,  and  some  successful  exp<'riments  ;  but  nothing 


i 


^i^ 


m 

WW 


iii 


III 


^'^Ei^fe»!9i^»8«imwtfJiwt^j<B^gBi^^.ia8. 


352 


PROBLEMS  OF  LABOR 


of  any  large  consequence.     The  lack  of  growth  in  this  country 
is  due  to  various  causes.     Greater  mohility  of  population,  both 
within   cities  and  between   separate  regions,  i.s  a!i  obstacle. 
The  greater  ease  with  which  capable  persons  rise  in  the  social 
and   intlustrial   scale   often   deprives   co()i)erutor-,   as   it   does 
trade-unionists,  of    possilile    leaders.     (Ireatcr  prosperity  and 
larger    earnings    cause    iiulilTerence    to    sinali    savings.     Anil, 
finally,  retail  shopkeeping  is  usually  conduilcd  with  fair  efli- 
ciency.     The  occupation  is  not  under  a  ban  of  social  deprecia- 
tion, as  it  hius  so  long  been  i!i  older  countries,  and  therefore  it 
attracts  more  readily  men  of  ambitio!i  and  capacity,     in  the 
urban  centers,  much  of  it  is  carri»'d  on  with  more  than  fair 
efficiency.     The   large   shop   and   the   d.partm.iit   store   have 
nowhere  been  carried  to  so  high  a  pitch  :i>  in  tlie  Tnited  States. 
None  the  less,  a  great  deal  of  petty  and  wast.ful  sliopkeeping 
remains.     For  the  working  classes,  the  small  retail  trader  often 
is  half  a  friend  in  need,  half  a  swindler  and  parasite.     There  is 
opportunity  for  a  declaration  of  indcp«'nden<'e ;    but  the  ways 
and  habits  of  the  people  s«tin  not  to  favor  independence  by  the 
method  of  cotiperation.     It  is  >triking  that  the  really  succes,s- 
ful   workingmen's  stores  in  the   I'liited  States   (not   many  in 
any  case)  usually  hav«"  a  inembershi()  maile  up  of  newly  arrived 
and  still  claimish  immigrants. 

§  3.    In  some  other  directions  there  has  lK«en  a  development 
of  cooperation  not  less  striking  than  that  in  retail  trading. 

In  cooperation  for  securing  better  cretlit  facilities,  tlic  Ger- 
mans have  taken  the  lead.  The  name  of  Seiiul/.»'-l)elitzsch  is 
associated  with  this  movement  in  Germany,  a>  the  name  of 
the  Hochdale  Pioneers  is  with  the  stores  in  England.  Schul/.e, 
a  native  of  the  town  nf  n.lit/.sch,  conceived  the  plan  of  uniting 
groups  of  tradesmen  and  artisans  for  getting  smalt  loans  on 
Letter  terms,  and  led  the  way  with  signal  ability  in  tlie  develop- 
ment of  the  plan.  In  essentials,  it  is  sim|)le  enough.  A  knot 
of  persons  -  tradesmen,  artisans,  and  the  like  form  a  credit 
.society,  beginning  i>y  siibserii>iMg  a  small  initial  capital.  On 
the  strength  of  this,  and  of  their  own  individual  hability,  they 


COOPERATION 


353 


l)orrow  more, -two  or  three  times  more.     Schulze  always 
muiutaiiuHl  that  for  these  outside  lK)rrowings  unUmitetl  liabihty 
l)y  each  member  (as  in  a  partnership)  was  essential ;   not  only 
l,eeause  the  p^-rson  lendins  to  the  society  thus  had  the  security 
„f  bcMUR  able  in  cause  of  ilefault   to  levy  on  any  and  every 
member  indivi.hinllv,  but  because  this  very  liability  made  tlie 
members  and  manaRers  unfailinsly  watchful  in  their  deahn-s 
aniouK  themselves.     The  total  sums  Rot  together,  their  own 
and  borrowed,  are  tlien  lent  out  to  the  members  in  modest 
amounts  at  a  m...!.Tate  rate  of  inter.'st ;    this  rate  of  mterest 
being  higher  than  that  at  which  th.>  loans  from  outside  are 
secured.     Even  tl,..ugh  higher  in  this  way,  the  rate  to  members  is 
(•(.mmonlv  U--  than  they  would  have  to  pay  otherwise.     And 
this  is  the  precisi>  obj<>ct  aimed  at,  -  to  enable  small  producers 
to  get  the  advances  they  need,  without  paying  tlu-  high  rates 
of   interest    which   as   individuals   they   would   almost    always 
have  to  face.     Hy  combining  their  resources  and  their  credit, 
and  bv  managing  the  loans  aimmg  themselves,  they  are  able 
to    borrow    at    moderate    rates.     Knowledge   oi   each   others' 
capacity  and    prol)ity  is  important,   and    enables    the    credit 
society"  to  make  advances  and  take  apparent  risks  which  no 
outsider  would  assume  except  on  burdensome  terms.     As  with 
the  British  stores,  the  system,  once  established  and  perfected, 
has  provvd  catmbi."  ..f  wide  development.     The  societies  number 
many  hundreds  (about  ',MM)  in  V.m),  ami  play  an  important 
part'in  (Jeri.Ku.v.     S,)m.-  among  them  are  large  financial  uisti- 
tutions,  with  ineinbers  u.c  borrow.'is)  who  do  business  on  a 
cmsi.lerabl.'  ^>■ale  a^  trul.'siiien,  mrrchaiits,  manufacturers. 

Thout.!.  MHiulin...  u-ed  for  considerable  transactions,  .■r.dit 
,.,„,p,.,.,i,i.,„  of  tirn  snrt  is  essentially  for  the  small  man.  It^ 
spread  an.i  suc,.>>  in  ( lermany  are  largely  due  to  the  fact  that 
M)  much  of  s.nuli-s.ale  pnMlucti..n  still  persists  in  thai  country. 
More  or  less  ..f  it  persists  in  any  country.  Large-seal.'  operations, 
far  sprea.l  and  growing  tlu.ugh  they  are,  have  nowhere  ^wept 
tlie  (ield  .iitiivlv.  Iu('..rniany.periiai)s  more  llianin  any  other 
advanced  c.untry,  the  arti  :i>.s  and  small  producers  have  held 


III 


4 


'H 


Mictocorr  risoiution  tbt  chart 

(ANSI  ond  ISO  TEST  CHART  No   2) 


|50     "^^ 

1^ 

ul^ 

tSi 

^lii 

■It    ■■■ 

1^.0 

1.25  iu 


I 


1.8 


1.6 


A 


APPLIED  IIVHGE     Inc 

'f/-'    fasi    Mu.f    '^f'fut 
I '16)    ^na       ^989       Fn< 


354 


PROBLEMS  OF  LABOR 


their  own,  not  only  through  inertia,  but  throuKh  an  adaptation 
to  nKKJcm  niotliods  of  production  tluit  iuis  given  them  real 
vitulitj'.  Tlie  Sehulze-Delitzsch  ;-ocieties  have  done  tnuch  to 
iiuiintaiu  them.  Tlie  unliassinK  industry  of  these  (iermans 
and  tlieir  conteiit  with  sjiarse  (>,ains,  liave  in  turn  provitied  a 
favorable  soil  for  I'le  credit  coiipi  ration. 

Another  pliasc  of  the  same  ^■en(  ral  movement  in  (jermany 
is  a.^sociiUi'd  witli  tlie  name  of  liailfeisen,  \v!io  also  was  a  leader 
ill  developing  an  effective  scheme.  RaiiTeisen  societies  are 
chielly  agricultural,  and  serve  the  needs  of  the  great  ela.ss  of 
peasant  proprietors  in  southern  and  western  (iennany.  Their 
organization  is  similar  to  that  of  the  Sehulze-Delitzsch  societies, 
which  are  commonly  urban  or  semi-urban.  Some  capital  i>j 
suliscriJK'd  by  members;  more  is  got  from  outside  (sometimes 
with  government  aid).  The  loans  to  members  are  for  longer 
periods  than  in  the  urban  socii'ties,  as  is  necessary  if  they  are 
to  be  of  real  service  to  ;igricultural  producers.  Their  .spread  has 
been  extraordinary  :  tliere  are  thousands  of  societies,  and  prob- 
ably one  half  the  smaller  agricultural  proprietors  of  Clermany 
are  enrolled  as  meml)ers.  J']ach  society  has  comparatively 
few  memliers,  and  covers  a  limited  region;  the  essence  of  huc- 
eess  is  IK  ighltorly  knowledge  and  supervision. 

( )tlier  suits  of  societies  flourish  in  ( iermany,  —  societies  for  the 
l>iirchase  of  materials,  for  the  sale  of  products,  for  the  purchase 
and  use  of  m.ichiiiery  too  ex])ensive  for  any  one  memlxT. 
The  credit  societies,  as  well  as  these,  have  spread  into  other 
countries.  Credit  cooperation  has  had  a  large  development  in 
Itidy,  wlii'ie  al-o  it  has  ijrove!  to  meet  the  needs  of  the  class 
of  sm;ill  li,iiie-<nien  ,'iiid  .arti-  .  ;  mul  it  has  spread  similarly 
.•!»non|i:  the  fifiriiulliir.'il  ela-iM's  of  northern  Italy.  It  is  odd, 
and  not  reiulily  exnhitied,  Ih.it  in  F.-.inee  no  one  of  these  forms 
of  r-(io]ieiation  whether  in  slonkceping,  for  credit,  or  for 
other  nmdouous  ends       has  hiid  any  considerable  growth. 

A  strilJ;uf  advance  li,'i>-  lieen  made  in  Denmark,  and  to  some 

f.MfiiT     ill     t;;!!i"i     .;;:!r  ;;;!;;■.  i;i:i    ftjuin  :  it-,  — nrrjHT.-i:  !'t:i    ;!;!i'''l;i 

iigiiriiltiiral  producers,  in  eolhciing  milk  and  nuikiiig  butter. 


,  ..  -OTl  ^.. 


COOPERATION 


355 


curing  bacon,  packing  and  shipping  eggs.  A  largo  export  trade, 
especially  to  England,  has  been  built  up  on  a  l)asis  of  coopera- 
tive effort.  The  English  naturally  look  on  this  achievement 
with  envy,  and  wish  that  their  own  agrieultiirul  jiroducers 
might  adopt  the  same  methods  witli  tlie  same  success.  Rut 
for  success  of  this  sort  a  syst(>m  of  land  ownershii)  in  small 
parcels  is  necessary,  or  at  least  on<>  of  long-term  teiKiucy  with 
assured  compea^ation  for  improvements;  and  not  only  such 
an  assured  position,  Init  habituation  of  the  cultivators  to  it. 
Tlie  Englisli  system  of  lamlowning  and  land  tenure  constitutes 
the  great  ol)stacle  to  the  spread  of  this  sort  of  coopi-ratiou  in 
England,  rossihly  in  Ireland,  wliere  the  ousting  of  tii(>  land- 
lord and  the  transfer  of  the  land  to  the  cultivators  are  being 
accomplished,  there  is  a  i)romising  lidd  ;  and  an  earnest  elTort 
is  now  being  made  l)y  the  l)est  frieixls  of  the  Irisli  to  tvach 
them  the  principles  and  practise  of  agricultural  coopi'ration. 

§  4.  All  the  schemes  outlined  in  tiie  ijreceding  .sections  are 
for  partial  cooperation.  Tliey  leave  the  members  indepem lent 
in  their  main  industrial  activities.  Very  ditVerent  is  the  case 
with  cooperatioi'.  in  i)roduction.  lb  re  tlie  (  iideavor  is  made 
to  get  rid  of  the  business  man  at  the  vital  place.  Workmen 
get  together,  and  procure  in  some  way  (by  saving,  burrowing, 
public  aid)  an  initial  capital.  They  jiossess  their  own  tools 
and  plant,  buy  their  materials,  sell  the  output,  and  diviile 
among  themselves  tlic  proceeds.  They  are  their  own  nianagers 
and  their  own  eiupli  crs;  and  if  successful  they  can  seciu-e 
busin(>ss  profits  as  well  as  ordinary  wages,  and,  not  lca>t,  <;iii 
emancipate  themsrivcs  from  the  depiudent  position  of  the 
hired  employee. 

Evidently,  if  thi>i  w<'n>  done  on  a  hrge  scale,  social  roieli- 
tioris  and  the  organization  of  indiHtry  would  li<>  |irofoiind!y 
alTected.  The  employing cipitalist  woidd  di-api>car.  Tlie  cm- 
seipient  change-^  would  !"•  V!i>lly  gicatrr  th.aii  tli'^-c  from  tlu' 
«pr(>ad  of  th(>  other  forms  of  cooiieration.  Hi  triluitive  co- 
operation, if  carried  to  its  utmost  conceivalilc  development 
(and  It   IS  far  trom  iieing  carried  to  that  stage,  or  \Vk<\\  (<>  i»j 


'Im  ^^ 

m 


f' 


356 


PROBLEMS  OF  LABOR 


would  mean  simply  the  displacement  of  the  retail  shopkeepers 
by  a  set  of  salaried  agents.  Cooperation  in  credit  touches  only 
some  fringes  and  loose  ends  of  the  modern  industrial  system. 
The  various  phases  of  cociperation  in  agiit  ulture  are  designed 
to  aid  the  independent  farmer,  and  strengthen  his  position,  not 
to  sui)ersede  him.  But  pnxhutive  cooix-ralion,  if  carried  out  to 
the  full,  would  modify  hocial  and  industrial  orf^aiiization  at  a 
crucial  point.  Even  if  ai)plied  not  univi'rsaiiy.  hut  on  a  scale 
eomparal)le  to  that  of  the  other  forms,  —  if  it  et)uld  siiow  hun- 
dreds of  societies,  and  with  members  l)y  tlie  t"ns  of  thousands 
or  hundreds  of  thousands,  —  its  spread  would  mean  something 
of  high  import  for  the  present  and  future. 

Unfortunately,  coopiiaticm  in  production  hardly  exists;  or, 
if  it  exists,  only  to  sui'h  an  extent  that  the  thing  cannot 
l)e  said  to  i)e  unknown  or  untrieil.  A  considerahle  number  of 
exi)eriments  in  it  have  l)een  made  in  various  countries.  Tlien^ 
have  been  sporadic  cases  of  sustained  success.  But  the  record 
on  the  whole  is  one  of  failure. 

This  is  true  evi'u  in  France,  where  the  cases  of  success  are 
most  numerous.  As  was  just  mited,  the  other  forms  of  eocipera- 
tion  seem  to  find  no  favorable  field  in  France  ;  l)Ut  at  least  the 
disposition  has  appeared  to  make  trial  of  production  by  united 
workmen.  The  state  has  freely  aided  workmen  in  thes(; 
attempts,  l>y  loans  and  Ity  contracts,  from  the  revolution  »*f 
ISIS  down  to  our  own  time.  State  aid  is  often  said  to  b(^ 
dangerous  to  cooperators ;  a!\d  probably  i I  i.--  true  (liat  those 
cn()|)erators  are  most  likelv  to  succeed  wlio  i>eu;iu  in  a  small 
Wiiy  on  their  own  s;i\  ii  :  ■,  nnd  depeiid  ibrnu  huut  oi'  ttieir 
own  indu-try  and  elliciency.  Vet  some  Muictie.  aided  l)y  tlie 
state  in  France  liave  ha  I  a  loim  and  succes-^fMl  car"er.  The 
same  is  true  of  a  few  societies  tliut  li  iv    '^v  >,,  n  oiit  of  ihe  f.unou  . 


profit-sharing  experin.eii 


The  ,v. lilviii".  .iiiii.u  is  tliat  whether 


ji'  led  l)y  the  stale  or  nn| .  w'lether  --I.j'Icd  fr.iin  the  bej;inniii'i 
as  productive  societies  or  llie  ouiunnvth  of  profit  sharing,  they 
are  M«  few.     There  has  l)eeM  ii  >  Irk  oi  propauanda.  of  opi)or- 

I  Sec  aJMivi'.  (  imiitrr  .>(),  {  I. 


T.  «w"ii 


COOPERATION 


357 


tunity,  of  support.  But  the  net  result  is  as  nothing,  compared 
to  industry  in  general,  even  compared  to  the  growth  of  other 
forms  of  cooperation. 

In  other  countries  there  is  the  same  insignificance  of  the  pro- 
ductive societies.  In  (ireat  Britain  a  very  few  have  held  their 
own.  In  recent  years  these  have  been  bolstered  up  by  tlu' 
great  distributive  stcjres,  which  have  l)ougiit  by  preference 
some  products  from  the  producing  coc Operators.  This  sort  of 
patronage  is  not  necessarily  eiifeel)ling,  any  more  than  is  i)ul)lic 
aid.  But  tiiat  it  is  welcomeil,  or  even  resorted  to,  shows  that 
the  i)rospects  for  inilependent  success  are  not  good.  Unles-; 
the  coiiju'rators  can  do  so  well  in  quality  and  price  of  tlu'ir 
f;oods,  and  in  the  earnii;its  whidi  th(>y  secure  for  themselves, 
that  they  call  for  no  favors,  but  simply  competv  with  em- 
ploying cai)italists  on  even  terms,  there  is  no  chance  of  any 
large  development. 

It  is  st.  -king  that  in  (Ireat  Britain  the  cooperative  stores  have 
themselves  entered  in  another  way  on  the  field  of  production. 
The  great  wholesale  societies,  and  some  of  the  individual  retail 
societies,  have  estal)lished  failories  and  workshops  of  their 
own,  for  making  shoes,  clotliiug,  hardware,  biscuits,  jams, 
and  pickles;  they  have  even  tried  tea  i)lantiiig  in  Ceylon  and 
(with  doul)tful  success)  farming  on  their  own  account  in  (ireat 
Britain  and  Ireland.  But  all  these  establishments  are  managed 
by  superintendents  sent  down  from  the  cooperative  stores. 
The  workmen  in  them  are  hired  in  the  same  way  and  sul)- 
wtantially  on  the  same  terms  as  in  ordinary  private  estaliiish- 
ments.  Obviously,  this  is  a  very  ditTerent  thing  from  true 
cot'ipefation  in  i)roduetion,  where  the  workmen  find  the  riian.igi'is 
among  their  own  niniiliers.  The  sueeess  of  the  stores  in  then 
subsidiiiry  establishments  is  due,  no  doul)t,  largely  t^  the  fact 
that  they  have  an  assureil  market,  and  confine  themselves  to 
making  staple  goods  by  staple  method>.  None  flie  Irs-,  it  is 
surjjrisiug  that  the  iissoeijited  workmen  should  have  jiejiieved 
success  in  manaii<'meiil  l)y  this  route,  when  they  have  faih-d  of 
it  by  the  mnre  direct  route. 


' 


\f 


I.  i 


358 


PROBLEMS  OF  LABOR 


\i\ 


The  essential  difficulty  in  the  way  of  coiiperation  in  produc- 
tion  is  that  it  attempts  to  supersede  the  business  man  where 
he  is  most  needed.     Its  failure  is  at  once  a  result  and  a  proof 
of  the  rarity  and  the  importance  of  business  leadership.     In- 
telligence, imagination,  judgment,  courage,  powers  of  organiza- 
tion and  administration,  -  all  the  qualities  needed  for  success 
in  business  mauagem.-nt,  —  are  possessed  in  the  right  com- 
bination   bv    few   individuals.     Cooperation   cannot   dispense 
with  these  leaders ;  it  would  have  to  enlist  them.     But  no  spur 
to  the  full  application  of  their  powers  has  been  found  com- 
parable to  that  of  individual  ownership  and  individual  gain. 
Individuals  of  high  capacity  are  sometimes  found  at  the  head 
of  cooperative  enterprises,  working  unselfishly  for  the  cause 
and  for  their  fellows.     Such  apparently  has  been  the  case  in 
some  of  the  great  British  stores.     Such,  too,  has  been  the  case 
in  some  of  the  great  profit-sliariug  enterprises.     But  these  are 
e.xceptions.     Most  men  exercise  their  faculties  to  the  highest 
pitch  wh.'n  working  for  themselves  and  their  families.     Possibly 
a  sulistitute  for  the  driving  force  of  self-interest  may  be  found 
in  an  entirely  different  organization  of  society;    of  this  more 
will  be  said  elsewhere.     But  coc.peration,  put  on  trial  in  the 
midst  of  an  individualistic  and  capitalistic  organization,  has 
failed  to  enlist  the  needed  leadership. 

The  complications  of  modern  industry  make  cooperative 
production  more  dillicult.  Large-scale  operation,  great  plant, 
clalioratc  processes,  int(>nsify  the  need  for  managers  of  abil- 
ity and  resource.  But  (>ven  in  those  comparativ(>ly  simple 
industries  which  are  develop.Ml  i)ut  little  beyond  th(>  handi- 
craft stage, —  and  tiiere  are  not  a  few  sut'h,  in  various  direc- 
tions,-   th .np''''"<'V'"  P'''>'»  li"'^  "<»*  ''•■'■"  '""^""^  ^"  ^^■"'■•^'     ''^^ 

with  profit  sharing.  on<-  might  expect  to  fmd  a  greater  degree 
of  success  in  tliese  sorts  of  i)usiness;  but  in  neither  case  is 
there  anv  ch'ar  indication  from  experience  that  the  character  of 
the  in.lustry  nuik<-s  a  great  ditT.-rence.  Tlu.ugh  the  co. Operators 
undertake  an  industry  requiring  comparatively  smali  plant 
an.l  no  claborat.'  organization,  and  though  they  possess  in  their 


COOPERATION 


359 


own  ranks  the  right  man,  —  perhaps  a  hidden  genius,  —  it  is 
far  from  certain  that  he  will  he  put  in  charge  by  his  fellows, 
and  kept  in  charge.  There  is  likely  to  he  jealousy,  vacillation, 
stagnation;  and  the  industri:.!  world  is  moving  farther  and 
farther  away  from  the  methods  of  town-meeting  democracy. 
The  capable  man  finally  sets  up  for  himself,  or  enters  the  em- 
ploy of  others  in  an  administrative  post.  If  these  difhculties 
are  serious  in  the  simpler  industries,  they  become  more  and 
more  so  with  the  growing  scale  and  complexity  of  modern 

busm(>ss. 

Hence  the  conclusion  both  from  experience  and  from  gen- 
eral reasoning  is  that  coi)peration  is  not  likely  to  revolu- 
tionize the  social  ord(>r.  It  may  grow  considerably  in  some  of 
the  ancillary  operations  already  carried  on  with  success.  But 
the  hopes  entertained  a  generation  ago  by  many  economists, 
that  it  was  only  in  the  first  stagt>s  of  a  far-reaching  develop- 
ment, are  now  cherished  by  few.  Other  ways  of  mitigating 
in(>quality  and  widening  opportimity  have  come  to  enlist  the 
enthusiasm  of  social  reformc^rs,  —  labor  organization,  labor 
legislation,  extension  of  public  management  and  control, 
socialism  halfway  or  all  the  way.  To  the>e  the  future  seems 
to  belong,  not  to  cooperative  methoils. 


'    ^i 


u 


REFKnKNCF.s  o\  Book  \'I 

A  compact  discussion  of  the  topi.-s  in  lliis  Hook  is  in  T.  S.  .\.liinis 
and  H  L.  Sumner.  ImI:;-  I'rohl.m.^  (HM»:,).  On  tnuUMinioiis,  the 
,.|iil>orale  l.<.ok  l.v  S.  an.l  B.  \V.>I.I..  holuslrud  Ih  morran,  (lltlf.'l,  is  ot 
hiijli  .lualitv:  wriltcn  with  spi-ial  reuard  to  Kntrlish  (>Nperien<M.,  a.i.i 
8latinn  loo  strongly  the  ras,.  in  favor  of  the  tra.h-union.  On  the 
American  situation  tliere  is  no  k'ooil  systematic  hook;    hut  excellent 


studies  on  some  phases  are  in  .1.   II.   ILdiander  and  (1.   H.   HMrncit. 

Sh..lux  in  Aw.nran  Tnt.t.-Cninnixm  (I'.to:,).     On  Austiala-ian  .;xpc.i- 

clict.     8W   V.    S.    (Mark.    Thr    Lnhor    Marniunl    in 

,uu\  on  the  history  of  h.hor  h^slation  in  Knu'land,  H.  b.  Uutcluns  a,„ 

A.  Harrison.  A   llisioiii  «(  I'luionj  l.nji.ihilioti 

/;,.„,...  f„r  Wnrl.   ilS'.in.  is  a  irooil  impiiry  on  experien 

its   puhhcation.     On   Nv..rUin«men's   insurance  an.l   "'i''"'    '"'"'7;, ,7''" 

11     11.  ScuBur,  .Sochi/  Insunimr:    <i   I'mynim  of  S,,rinl  lirhrm  inmij, 


Ilulcliins  a 

I  I'HIHt.      .1.    Hae.    Ki'ilil 

t>i   I  lie  date  of 


UK  I 


360 


PROBLEMS  OF  LABOR 


brief  and  excellent.  More  detailed  and  more  informational  is  L.  F. 
Frankel  and  M.  Dawson,  Workingmen's  Insurance  in  Europe  (1910)  ; 
still  more  elaborate  is  the  Twenty-fourth  Annual  Report  of  the  Com- 
missioner of  Labor  (U.  S.),  Workingmen's  Insurance  and  Compensation 
Systems  in  Europe  (2  vols.,  I'JIO).  W.  H.  Beveridge,  Unemployment 
(1910),  is  an  able  book,  at  mwe  sympathetic  and  discriminating.^  A 
good  general  account  of  the  cooperative  movement  is  C.  11.  Fay, 
Cooperation  at  Home  and  Afnoad  (1908). 

For  more  detailed  bibliographical  memoranda,  see  the  Guide  to  Read- 
ing in  Social  Ethics  and  Allied  Subjects,  published  by  Harvard  Uni- 
versity  (1910). 


BOOK   VII 

PROBLEMS  OF  ECONOMIC  ORGANIZATION 


'HI 

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^\^^^-^ 


CHAFTER  60 


Railways 

§  1.  The  present  Book  deals  with  the  Inroad  aspects  of  the 
social  questions.  It  is  concerned  with  the  same  fundameuUil 
problems  as  the  preceding  Book,  —  inequality  and  the  ways  of 
mitigating  it.  But  it  considers  the  relation  of  the  state  not  so 
much  to  the  laborer  as  to  the  capitalist  and  employer.  What 
need  is  there,  what  are  the  ways,  of  controlling  private  business 
management  or  of  supplanting  it  ? 

The  railway  is  the  most  important  among  modern  industries, 
both  as  regards  its  effects  on  the  economic  structure  at  largo 
and  as  regards  its  own  special  problems.  ]More  than  any  other 
single  factor,  the  railway  has  brought  about  the  industrial 
revolution  of  the  last  half  century.  Its  cheapening  of  trans- 
portation has  immensely  promoted  far-reaching  geographical 
division  of  labor,  large-scale  production,  impending  monopoly, 
great  fortunes.  The  railway  itself  is  a  vast  enterprise,  with  a 
tendency  to  monopoly  conditions  in  its  inherent  workings ;  it 
threatens  in  private  hands  to  become  an  impcriun,  in  irnpiria; 
it  presents  most  urgently  the  problems  of  public  coniiol  a  l 
public  ownership. 

Before  entering  on  the   proljlems  of  public   rcgulati-.       r 
management,  it  is  desirable  to  analyze  some  of  the  fc-n.. 
characteristics   of    railways,   since    these   must    be   um!.  i 
before  the  larger  and  more  difficult  matters  can  be  intdii- 
dealt  with. 

In    its    most    important    economic    aspect,  —  as    a    ti' 
carrier,  —  a  railway  is  simply  an  instrument  for  briugiiij;;  Jib,.. 
;i  choapeuing  of  t!:e  tiling-  lran^poK."d  biMVius-'  they  ar.'  im. 
duced  more  advantageously  at  one  place  than  at  anoti»-r 

363 


i-d 


I 


,:  it- 
kI' 


hi 


'.:^!:mwm^i^  i^ 


3G4       PROBLEMS  OF  ECONOMIC  ORGANIZATION 


'f:- 


m 


People  commonly  forgot  that  all  agencies  of  transportation  are 
but  means  of  furthering  the  geograpliical  division  of  labor.     An 
enormous  amount  of  ctYort  is   given  ti)  activities  which   are 
dimply   ancillary,  —  which   serve   only   to   facilitate   the   more 
(ITective  ap]iortionuient  of  th(>  community's  lal)or.     The  ri'i!- 
v.a}s  of  the  United  Stat(>s  in  1000  employed  one  person  for 
ivery  twenty-nine  who  were  gainfully  occupieil.^     This  figure 
takes  account  only  of  those  employed  in  the  current  operation 
of  the  rouils,  not  of  those  who  had  worked  on  their  construc- 
tion;   and  we  shall  see  presently    that  the  amount  of  such 
previous  work,  as  indicated  hy  the  capital  investment,  is  excep- 
tionally large.     In  estimating  the  total  of  the  ancillary  activi- 
ties, we  should  have  to  reckon  also  the  millions  of  teamsters, 
merchants,  salesmen,  clerks,  and  so  on,  — an  enormous  host,  all 
engaged  in  facilitating  the  transfer  of  things  from  places  where 
they  can  be  produced  cheaply  to  other  places  where  their  ex- 
pense of  production  would  have  been  greater.     No  part  of  this 
labor  is  so  effective  in  promoting  exchan{,e  as  that  of  transpor- 
tation by  steam  railways.     A  comparatively  slight  advantage 
in  production,  which  in  former  days  would  have  been  offset  by 
the  expense  of  transportation  beyond  a  short  distance,  now 
suflices  to  concentrate  industry  in  one  region,  and  to  induce 
exchange  on  a  great  scale  between  it  and  other  regions. 

It  follows  from  this  obvious  but  often  forgotten  fact  that  a 
railway  is  not  economical!}  advantageous  to  the  conmiunity 
unices" it  pays  its  way.  lis  conclusion  is  not  in  accord  with  a 
common  opinion.  It  is  often  said  that  a  railway  or  other  means 
of  transportation  may  bring  gains  to  the  community,  though  it 
be  not  profitable  to  its  owners.  Similarly  it  is  often  argued  that 
a  government,  in  operating  a  railway,  may  accept  with  com- 
posure a  financial  loss,  becausi'  the  people  as  a  whole  have 
gaine.l  something  that  offsets  such  loss.  The  contrary  view 
seems  the  just  one.  No  gain  comes  from  carrying  a  thing 
from  one  place  to  another  un!<>s--  it  c.ux  be  produ.ced  at  the 

1  Th.'  tntal   mriilicT  nf  ,.rr3ona  caitifiilly  ni'i-upi'Hl   w;ix.  in  rciin.l   nuiiilHTH, 
20,()0(),0()0  ;  the  stoain  niilwiiys  t  iiiplovid  a  trifii"  moro  than  1,000,000. 


RAILWAY- 


30.') 


first  place  so  much  more  chcai)ly  that  it  can  afford  the  cost  of 
carriage  to  the  soconcl.  AliiUty  to  stand  the  transportation 
charge  is  the  test  of  the  utility  of  the  carriage. 

Needless   to   say,    particular   sections   and   particular   indi- 
viiluals  may  be  benefited  by  transportation  at  less  than  cost. 
The  state  of  New  York  is  now  (1901)}  engaged  in  a  great  eiilar^;'- 
ment  of  the  Erie  Canal,  at  an  expenditure  of  one  hundred 
millions  or  more ;   and  has  provided  (this  by  the  hard  and  fast 
method  of  constitutional   enactment)   that   no   tolls   shall   Ijc 
charged  for  the  use  of  the  canal.     When  the  canal  is  finished, 
it  will  be  as  if  nature  had  made  a  navigable  river.     Doubtless, 
more  traffic  will  go  to  and  through  the  city  of  New  York;  tlie 
rents  of  landowners  there  will  swell  still  further ;    some  con- 
sumers may  gain  in  having  goods  clieaper.     But  it  is  at  least 
an  open  question  whether  the  labor  which  built  the  canal  will 
yield  its  full  normal  results  to  the  community.     The  test  of  its 
having  bc2n  worth  while  must  be  whether  canal  tolls,  sufficient 
to  pay  for  the  labor  (and  waiting)  involved,  could  be  borne  by 
the  traffic.     It  would  be  desirable,  obviously,  to  have  all  trans- 
portation free,  and  to  have  every  commodity  produced  once 
for  all  where  it  could  be  most  cheaply  produced.     But  so  long 
as  transportation  involves  labor  and  waiting,  a  real  advantage 
from  exchange  is  got  only  if,  at  the  point  of  consumption,  the 
total  cost  can  be  met,  including  that  of  transportation. 

It  will  sometimes  be  of  advantage  to  open  up  a  new  country 
or  a  new  region,  by  railways  (and  the  argument  applies  e(iually 
to  wagon  roails,  canals,  steamship  lines)  whicli  do  not  pay  at 
the  outset.  This  case  is  analogous  to  that  of  protection  for 
young  industries.  Eventua'ly  the  railway  shouhl  pay;  if  th.> 
losses  of  the  early  .'^tage  are  not  recouped,  they  are  delinitiv(> 
losses.  It  follows  that  where  subsidies  are  given  to  (-iicourago 
railway  construction,  they  should  be  in  tin-  nature  of  loans,  to 
be  reimbursed  when  the  stage  of  profitable  operation  has  Ijcen 

reached. 

The  case,  in  other  words,  is  different  from  tliat  of  indu^t^ic•« 
which  yield  utilities  more  directly.     Some  industries  there  are 


i 


f! 


/ 


I 


366        PROBLEMS  OF  ECONOMIC  ORGANIZATION 

in  which  financial  loss  is  consistent  with  public  gain.  A  water 
supply  may  be  managed  by  a  municipality  on  terms  and  methods 
which,  while  involving  a  deficit,  none  the  less  bring  a  real 
advantage  to  the  public.  A  superabundant  supply  of  good 
water  brings  hygienic  gains,  as  well  as  other  more  direct  satis- 
factions, not  necessarily  measured  l\v  the  price  people  ar(> 
willing  to  pay.  The  post  ofhce  also  may  be  administereil  with 
good  reason  on  noncommercial  principles ;  for  the  dilTusion  of 
intelligence  is  u  l)Oon  not  measured  by  its  market  value.  Hence 
the  deficit  which  the  United  States  incurs  from  its  cheap  car- 
riage of  books,  periodicals,  and  newspapers  is  not  necessarily 
a  public  loss,  though  a  similar  deficit  on  a  parcel  post  for 
merchandise  would  l)e. 

Passenger  trafhc  i)r«>s(M\ts  a  somewhat  different  case  from 
freight  tratFic.  Home  passenger  traflir  is  much  nearer  the  stage 
of  utility  and  satisfaction  than  freight  traffic.  Most  of  it,  to 
be  sure,  like  freiglit  trad'  .  is  only  ancillary  to  the  division  of 
labor;  sucii  as  the  constant  going  of  people  to  and  from  their 
places  of  work.  Pleasure  traveling  alone  is  a  consumers' 
\  utility.  The  only  serio'is  ground  for  manaj^ing  passenger 
traffic  on  nouconunercial  principles  is  to  be  found  in  a  possible 
immobility  of  labor  or  crowding  of  i>opulation.  It  is  conceiv- 
able that  chea])  funs  under  congest,<'d  conditions  may  bring  a 
real  social  gain  not  measured  l)y  what  the  individuals  affected 
are  willing  to  pay. 

§  2.  Railways  iiave  two  inarkecl  economic  characteristics,  — 
not  such  as  to  make  them  in  tlie  last  analysis  dilTerent  in  kind 
from  other  industries,  but  so  grejit  in  ('egree  as  to  bring  rail- 
way problems  in  a  I'lass  !>>■  tlnMuselvcf  These  characteristics 
are,  first,  the  ijreat  size  of  the  phint  ;  ai\d  second,  tlie  fact  that 
the  operations  are  conducted  largely  at  joint  cost.  IJoth  have 
iinixirtant  coLsecpiences  for  the  probleMis  of  i>ul)lic  regulation. 

A  railway's  plant  is  lari-'e,  not  alone  alisoliitely,  but  relatively 
to  the  current  output.  \s  eornpaied  with  the  capital  invested 
ji^  p{i^nt.  the  .'inntiMl  ltoss.  re('>'!!>>s.  (th.e  Mieiisiire  of  the  output) 
are  but  a  small  fraction,       one  lifth  or  one  tenth.     A  manu- 


RAILWAYS 


367 


i 
1 

i 


f 


facturing  plant  in  which  the  plant  merely  equaled  in  value  the 
annual  output  would  be  regarded  as  having  a  relatively  large 
fixed  investment.  How  much  more  the  railway,  in  wliidi  the 
plant  is  five  or  ten  times  as  great  in  value  as  the  annual  turn- 
over ! 

Connected  with  the  large  plant  is  a  great  nexibility  m  its 
use,  an<l  a  tendencv  to  decreasing  cost  per  unit  of  traffic.     When 
a  railway  is  once  built,  its  r()adl)cd  and  other  fixed  equipment 
will  s-rve,  within  wide  limits,  whether  the  traffic  be  large  or 
small.     An  increase  cf  traffic,  tliousih  it  nutans  some  increase  in 
operating  exp(>ns(>s  dirobably  even  here  not  a  proportionate  in- 
crease), ordinarily  calls  for  no  increase  of  i)lant.    Hence,  for  the 
traffic  as  a  whole,  it  m(>uns  decreased  expense  per  unit.     This 
is  true,  of  course,  only  so  long  as  the  fixe.l  equipment  does 
contimie  to  sufiice  for  enlarging  traffic.     \\\iU  continuing  en- 
largement, the  .tag(>  is  eventnally  reachcl  where  the  plant  no 
longer  suffices.     A  ^ingle-track  road  eventually  may  need  to  be 
double-tracked,  or    tlie    d.)uble-track    road    four-tracked,    the 
stations   and   terminal   facilities  enlarged,   ami   so  on.     Then 
there  often  ensues  an  uneasy  period  for  tlie  railway  manager. 
A  great  and  proliablv  rapi.l  enlargem..nt  of  plaut  is  called  for. 
while  the  traffic,  though  loo  heavy  to  be  handle.l  with  the  «,l<l 
plant,  is  not   growing  rai)idly  «M,ough   to   insure  at  once  full 
emplovment  and  satisfactory  earnings  f<.r  tlu'  enlarged  i.lant. 
The  railway,  after   having  been   overwork.'d   with  its   former 
outfit,  has  "for  n  while  not  enough  business  for  its  new  outfit. 
This  sort  of  trying  transition  stage  is  most  noticeable  when  a 
railwav  parses  from  Mn'J.>  Intrk  to  dimble  track,  yel  shows  itself 
almo-t  as  nnch  in  liu' enormous  new  facilities  nce.l.Ml  in  regions 
„f  dense  pnpu!  Miou  and  tn.llic  l>y  roads  already  double-traek..d 

or  even  four-l  .ai'l.id. 

Through  all  these  <'lKin-es,  and  with  the  irregularities  ^^hlch 
ensue  from  the  gradual  lin.wth  of  trailic  and  the  or.aMonal 
abrupt  increase  of  pint,  th.Me  i-nns  a  t.Mid.ney  to  .leereasmg 
cost  „er  unit  of  Ir.flic;  lint  is.  a  tendencv  to  nuTcasmg 
return      A  double-traek  road,  with  a  snili.ient  density  ot  tralfio. 


m 


■  ( 


ir 


r, 

[LV,. 


J-  ♦*. 


368        PROBLEMS  01'   ECONOMIC  ORGANIZATION 

carries  freight  and  passengers  more  cheaply  than  a  single-track 
road;  a  four-track  road  more  cheajily  than  a  double-track 
one.  It  follows  that  two  siuRle-track  roads  over  the  same 
route  are  a  wasteful  application  of  the  community's  resources, 
as  compared  with  oi\e  dou'hle-track  road;  and  so  on.  And  it 
follows  further  that  concentration  and  monopoly  promote 
the  tluifticst  ways  of  laying  out  the  railway  net, 

One  important  consequence  of  a  railway's  large  plant  is  the 
frequency  of  sudden  transition  from  financial  failure  to  financial 
success.     This  is  especially  the  case  in  rapidly  growing  com- 
munities.    When  a  road  is  tirst  l>uilt.  the  traffic  may  not  Imj 
large   enough   to   make   ojieration   i^rofitahle.     Gradually   the 
traffic  grows;    ami,  as  it  grows,  tln>  road  is  al)le  to  carry  it 
with   the   existing   plant,    and    also    with    operating   expenses 
largely  unchanged.     A  stage  is  thus  reached  where  the  trafht^ 
and  the  reveniie  from  it  are  such  that  a  profit  is  earn<Ml,  thoujih 
just  l)cfor.>,  with  a  traffic  hut  li>ili>  smaller,  the  capital  invested 
ha<l  secured  little  or  nothing,     .^n  abrupt  chang(>  in  financial 
outcome  takes  place,  and  with  it  a  r^harp  change  in  the  market 
price  of  the  railway's  securities.     For  the  same  reason,  fluctua- 
tions   in    general    Inisiness    activity    are   of   special   effect   on 
railways.     In  times  of  dei)ression  and  slackened  traffic,  they  can- 
not li'ssen  their  iieavy  capital  charge  and  in  large  degree  can- 
not lessen  their  oiierating  expet\ses.      In  times  of  revival  and 
growing  traffic,  their  receipts  increas(<,  without   an  increase  in 
their  expenses  at  all  cornv  •   ...tling.     Hence,  in  new  countries, 
or  in  countries  siil.j(>ct  to  gre  ii  fluctuations  in  li-isiiiess  condi- 
tions, railways  and  railway  securities  olTer  |»eculiar  opportunity 
for  speculation  and  speculative  investment,  mikI  for  large  gains 
by  the  shri-wd  and  far-igiited.      These  conditions  exist   in  the 
I'nited  States  inon    rnarkeillv  than  in  any  other  country,  and 
have  had  inu<li  to  .lo  with  \\v  great  fortimes  made  from  rail- 
ways  in    this   country.     ,'>onietimes   the    first    invi'stors       the 
"builders"     -of  niilwiiys  hivi-  rejipi'd  large  gains,  by  waiting 
tiirougii   iiiiek  iiiid   liiiii   niilii  The   iTowtii  (if  tniflic  li.'ir,  m.'ule 
the   ei\terprises   profital)le,     UnWf   as   often,  thost-  who   have 


RAILWAYS 


3G9 


i 

i 
i 


bought  control  of  railways  in  the  iiitormodiat"  period  of  uncer- 
tainty have  made  fortunes  hy  tlie  rapid  transition  from  loss  to 

profit. 

§  3.    A  second  peculiarity,  no  less  important   in  its  c()ns<>- 
quences,  is  the  element  of  joint  cost  in  railway  expeiis.'s.     In 
good  part  it  results  from  tiie  fir>t.     When  any  lar-e  plant  is 
used  for  diverse  products,  the  case  is  so  far  one  of  pro.luction 
at  joint  cost.     So  it  is  with  a  railway.     The  same  roadbed  is 
u.sed  for  passenRcrs  and  freiijlit,  and  for  the  dilTerent  kinds  of 
pa.ssengers  and  freight.     If  the  outlay  for  plant  were  the  only 
expense  incurred  in  rendering  tlie  service,  the  case  would  lie 
one  completely  of  joint  cost.     There  are,  of  curse,  tl.e  operat- 
ing expenses  in  addition.     But  the  expense  of  the  plant  (rep- 
resented  chiefly   hy    interest    tm    the   investment),    forms   an 
unusually  large  part  of  the  total   voM  of  transportation.     In 
other  words,  return  on  capital   is  an  unusually  large  part  of 
the  expenses  which  nmst  in  the  long  run  he  r.rouped.     In  so 
far,  the  principle  of  joint  cost  is  •■ipplicahle  v.itliout  qualification. 
But  the  operating  expenses  also  represent  in  large  part  joint 
cost.     Many  of  th.-m  are  incurred  for  the  traOic  as  a  whole, 
and  must  go  on  whether  or  no  in.lividual  items  of  traffic  are 
undertaken.     Such  is  most  obviously  the  case  with  the  larg.' 
expenditure  for  maintenance  of  way.     Tiie  roa.jbed  must   be 
patrolled,  kept  in  order,  an<l  repaired  from  tl,e  w(>ar  of  .'xposure 
and  use;   and  this  whether  there  i)e  mucli  or  little  traffic,  ••ne 
or  another  kind  of  trafhe.     Saf.'ty  applianr,-s  must  be  there  in 
any  case.     Much  station  expense,  especially  at  small  i)lace>,  is 

the  same  wh<-ther  business  be  larg •  small.     So  it   is  a^  to 

general  office  and  administrative  expei.s.  s.  All  su.'h  expenses 
serve,  for  example.  e(i.i.ally  for  passengers  and  freight,  and  can- 
not b.-  said  to  be  iucnrr.'d  specifically  for  .illier,  or  1o  !..■  >eparable 
as  expense  for  one  or  the  other.  At  lea>t  one  h.,!!'  of  (he  total 
oj)(>rating  expens..s  of  a  railway  are  impossibl..  of  ai.portionment 
to  any  class  or  items  of  tr.itii.-,  and  thus  stand  for  joint  cost.' 


1 


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1  An  pxi«ri.'ii.  .•.!   r:.ilw:iv  immiui."  r  i.n  .   rrrruWs    n'Mi ;    -•  itrt!   :::.-,      ^''"" 
flfty-nvo  iL  r..nt  .,f  tl,.    .  M.  u.^^  ,.(  ..,„  ru.iM.  uo  ..,  u.,.forn,l.v.  r.«,.rai..»»  uf 
VOL.  II       2  II 


H  ■ 


w^^w.^mr^^ism.-Wi] 


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370        PROBLEMS  OF  ECONOMIC   OKGANIZATION 

Even  as  to  thoso  items  of  expense  which  are  not  commoa 
for  the  traffic  as  a  wliole,  there  is  often  an  element  of  jomt  cost 
for  a  considerable  bl(3ck  of  tradic.     Those  operating  expenses 
which  are  not  wholly  joint  vary  in  the  main  acconhus  to  the 
ni-mber  of  trai      nm  and  the  distances  run  l)y  them;   that  is, 
according  to  tram  miles.     Every  train  mile  nu-ans  so  much 
separate  outf^o  for  wa^es,  fuel,  wear  and  tear  of  rolh.ifr  stock 
and  of  track.     Hut  a  train  may  have  ten  cars  or  thirty,  and 
the  cars  mav  be  full  or  empty.     Tram  miles,  and  conse<iuently 
the  immediate  expenses,  will  be  substantially  the-  same  whether 
the  train  be  long  ..r  short,  full  or  empty;    but  the  tonnaR.' 
carried  will  be  verv  diff<<r(nit.     It  is  a  cardinal  maxim  in  rail- 
way op..ration  that  every  train  ou^lit  to  have  as  many  ears 
as  the  eiiRine  can  haul,  and  that  every  car  oufrht  to  bo  loa.led 
to  its  full  eapacitv.     Rut  this  ideal  maximum  utilization  of  the 
rolling  stock  -  this  id.«al  littinR  of  ton  miles  to  train  miles - 
is  im|)ossible  of  attainment.     There  are  inevitably  some  short 
trains  (especially  as  to  local  freiRhts)  an.l  some  cars  empty  or 
half  full.     I'or  each  train  by  itself  there  is  one  cost,  joint  for 
all  that  it  carries. 

The  same  situation  is  even  more  obviously  present  m  pas- 
si-nK<'r  s(>rvi(v.  PasseuRer  trains  must  run  on  tlieir  schedule 
time.  Their  expense  is  substantially  the  same  whether  the 
cars  be  full  or  empty,  whetlier  they  have  the  maximum  num- 
ber of  cars  an  <'tiRine  can  haul,  or  (miy  half  or  a  third  of  that 
number.  A  v.tv  Rr.Mit  incrcas(>  in  traffic  entails,  it  is  true,  an 
increase"  in  pass..nii<'r  train  miles.  Hut  a  very  considerable  in- 
crease in  passciiR.Ts  and  in  revenue  may  coini  without  any 
mhlitional  train  mil.s;  tluit  is,  without  any  appn-ciable  ditTer- 
ence  in  e^^H-nse.  A  mail  car.  excursion  car.  slecpiim  car,  private 
car,  nttac.  'd  to  a  reiiular  pa-  eiiRcr  train  involves  no  additional 
rxpetise;  t.  ••  whole  train  is  operated  at  one  joint  cost.  On 
European    railways    lirst-class,    second-class,    ami    third-<'lass 


the    volumi-   cif    lill>llli'^s   (1(1111  ■"    It 


til,,  vi.liinic  111  l.iiMiir^^  ilniic      ir.    A     l"i ""'■  i"    T'"   W.;l.rr..~.!.,„.  r.i-ua-y 

,„,,).      S. Imo  till    rl:ilH,r:ilr  limiri  s  in  tli-  |{(i.(.ii.Hof  Ihr  VVwroimm  HKilrici.l 

Ci.mmiwiiiiii,  Vol.  1,  p.  3S2  mid  /xia.iiw. 


RAILWAYS 


371 


carriages  commonly  form  part  of  the  same  tram  and  are 
operated  at  one  johit  expense  for  the  train  as  a  whole  Ihe 
apportionment  of  charge,  among  the  dilTerent  classes  of  pas- 
sengers proceeds  (in  a  rough  way)  on  tliat  basis  of  utility  or 
demand,  which,  as  has  been  shown,  dominates  where  cost  is 

^"^Manv  peculiarities  in  railway  rates  ar.>  explained  by  the 
principle  of  joint  cost.  It  underlies  tlie  much-misconceived 
practise  of  "charging  what  the  trailic  will  bear."  That  prac- 
tice it  is  true,  describes  also  another  and  very  different  aspect 
of  rail wav  rates,  -  their  monopolist  ic  character,  -  of  which  more 
will  be  said  in  the  next  chapter.-^  As  comimmly  used,  the 
phrase  refers  to  th.>  apparent  failure  of  railway  rates  to  con- 
form to  cost  of  production. 

No  item  of  tradic,  it  is  obvious,  will  be  carri.ul  at  a  charge 
less  than  the  separat<>  expense  involvd  f..r  it.     But  above  the 
.n.all  separate  expense  is  the  gn-at  mass  of  joint  expense ;   and 
that  joint  exi>eus(-  nuist  be  got  back  som.'how,  ..r  else  railways 
will  not  iH'  bailt.     Some  items  of  traiiic  will  "stand"  a  heavier 
charg..  than  oth.-rs;    that  is.  they  will  conti.uie  to  be  offered 
ev.-n  th..uuh  the  transportation  c^harge  be  high.     Other  items 
will  "stan.l"  onlv  a  l-w  charg.> :   that   is,  they  will  not  come 
unless  the  charge  be  low.     The  j..int  expense  will  be  got  back 
from  the  former  set  nuicli  more  than  from  the  latter.      1  l.is  is 
the  main  explanati.m  of  the  .•lassilical.on  ..f  freight  ;  that  is.  the 
nnangem.-nt  of  articles  in  classes,  with  a  higher  rate  p<'r  unit 
of  weight  on  some  than  on  others.     Hailw.ys  in  all  countries, 
wh.-lher  under  i.ul>lic  or  under  private  management,  halutually 
,lK.rg.'    less    per   ton    ...ile    <.n    cheap   bulky    articles  than  on 
.rti.'les  having  hl.^h  v.aiue  p.r  unit  of  weight.     Thus  .'oal,  ores. 
,,,„,,,r,  are  "l.nv..ehss"  :uV,cies.  .Ml  which  rates  are  relatively 
low;    textiles  and  gro,vries  are  "higlM-lass"  articles,  and  on 
„„:„,  rates  are  hi,h.     The  roal.  ore.  lun,l>er.  will  n..t  be  olTered 
fo,  transportati.ui  unless  .ales  be  low  ;   the  trailic  will  bear  no 

1  S  .    I.  low,  <li:il>HT  til,  il>. 


Hi 

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372        PROBLEMS  OF  ECONOMIC   ORGANIZATION 

more.  The  textiles  and  groceries  will  be  offered  even  though 
the  charge  be  relatively  high;  the  traihc  will  bear  it.  The 
textiles  and  groceries,  therefore,  wil'  contribute  much  more  to  the 
general  (joint)  expeu«'s  than  the  coal  and  lumber.  In  railway 
parlance,  the  "prolil"  on  the  one  is  greater  than  on  the  other; 
which  means  that  there  is  a  greater  excess  of  receipts  over 
separable  exi)enses.  Where  both  kinds  of  commodities  are 
carrieil  on  one  and  the  same  train,  then;  are  virtually  no  sep- 
arable expenses  for  either.  Barring  such  items  as  loading  and 
unloading,  all  the  cxptnse  is  joint,  and  the  principle  of  joint 
cost  has  full  play. 

§  4.  To  explain  nn  economic  phenomenon  is  by  no  means 
the  same  thii\g  as  to  justify  it.  People  constantly  confound 
these  two  proceedings,  and  suppose  that  because  an  economist 
shows  how  a  given  result  comes  to  pass,  he  therefore  implies 
(liat  it  is  a  right  result.  That  the  principle  of  joint  cost  explains 
{\n  the  main)  the  practise  of  charging  what  the  traffic  will  bear 
dues  not  i)rove  tlie  practi:-e  to  be  just. 

As  to  the  (juestion  of  propriety  or  justice,  there  is  much  hazy 
talk  among  persons  who  have  had  to  give  attention  to  railway 
matters  but  have  not  been  versed  in  general  economics,  —  such 
as  railway  managers,  and  judges  and  i)ublic  officials  concerned 
with  the  enforcement  of  rate  regulation.  These  often  speak  as 
if  it  were  ol)viously  and  intrinsically  "just"  that  a  commodity 
having  higher  value  should  l)e  charged  higher  freight  rates. 
It  nnist  l)e  cotifcssed  that  some  trained  economists  have  spoken 
in  tlie  same  loose  way.  Vet  no  one  would  apply  such  a  notion 
to  transportation  by  i)a<'k  mule  or  w.igoi\ ;  the  charge  here  is 
the  same  (a>ide  from  insurance  and  the  like)  whether  the 
iirticles  I"'  silks  and  pri'ejous  metal<  or  coal  and  brick.  Being 
liahituated  to  a  dilTereiit  mode  of  fixing  railway  rates,  people 
liiink  of  it  a>  righteous;  for  they  commonly  regard  the  wtmted 
order  of  things  as  just. 

Tlie  juslilieatioii  of  eliarging  what  the  traffic  will  bear  must 
rest  on  a  further  principle:  namely,  tliat  it  conduces  to  the 
fullest  uti'.i-.alioii  of  tlie  railway.     More  service  is  got  by  the 


■HHH 


RAILWAYS 


373 


!; 


community  on  this  plan  tlian  would  be  got  on  a  plan  of  uni- 
form rates.     If  all  rates  were  on  a  uniform  toll  plan,  being  the 
same  per  ton  per  mile  on  all  freight,  —  a  so-called  system  of 
"natural"  rates,  — bulky  articles  would  have  to  pay  more  than 
now,  and  compact  and  expensi^-e  articles  would  have  to  pay 
less.     But  very  littler  more  of  the  exp<>usive  freight  would  be 
offered  because  of  the  lowered  rates;    whereas  the  amount  of 
the  bulky  articles  offered  for  trausportatiou  would  be  greatly 
diminished.     The  only  way  iii  which  the  bulky  articles  can  be 
made  to  move  in  great  quantities  is  by  carrying  them  at  low 
rates;  just  as  —  to  resort  again  to  a  comparison  now  familiar 
to  the  reader  —  the  only  way  in  which  cotton  seed  can  be  dis- 
posed of  is  by  offering  it  at  a  price  which  is  low  as  compared 
with  the  price  of  cotton  liber.     Most  of  tlu>  ex]iense  involved 
in  carrying  the  bulky  articles  is  incurred  anyhow  ;  it  is  involveil 
in  the  general  or  joint  expense  of  building  and  operating  the 
railway.     The  only  way  to  get  the  full  utihzation  of  all  this 
labor  and  expense  is  to  fix  tlie  rates  in  such  manner  that  the 
transportation  shall  cinne. 

The  geograi)hical  tlivision  of  labor  has  been  most  profoundly 
affecteil  !)y  railways,  in  the  production  of  these  very  articles 
having  great  bulk  and  weigiit  relatively  to  their  value,  —  coal, 
ores,  lumber,  an!  the  like.  The  vast  development  of  uumUm-.i 
industry  coul.l  hardly  have  taken  place  without  their  trans- 
portation on  a  great  scale  at  low  rates.  Through  the  general 
practise  of  charging  what  llir  traflic  will  bear,  and  through  that 
practise  only,  tiie  railway  plant  has  been  made  to  produce  its 
most  far-r(>acliing  results. 

§  f).  The  principle  of  j.iint  cost  fiu'ther  aids  in  explainin;; 
why  under  coniixtition  niilway  rates  are  low,  and  in  the  al)senie 
of  competition  an'  liigli  or  at  least  ii'ss  low.  The  expI;.nation, 
again,  leads  in  part  to  a  ju>tihcation  of  low  competilive  rates, 
in  part  does  not. 

Where  a  railway  competes  with  a  water  route,  or  with  another 
railway,  it  will  accept  as  low  a  rale  as  its  ri\:ii.  It  must  do  :;<>, 
or  go  without  the  traffic.     If,  indeed,  it  could  reduce  its  ex- 


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374        PROBLEMS  OF  ECONOMIC   ORGANIZATION 

penses  pari  passu  with  a  reduction  in  traffic,  it  might  withdraw 
from  the  competition  at  a  comparatively  early  stage.  But  its 
expenses  go  on,  in  the  main,  whether  the  competitive  traffic  is 
carried  on  or  not.  So  long  as  it  gets  anything  at  all  over  and 
above  the  separable  expense  which  this  traffic  entails,  it  will 
find  profit  in  accepting  it,  even  at  very  low  rates.  Meanwhile, 
it  must  somewhere  get  back  its  joint  or  "general'  exponses ; 
and  the  noncompetitive  traffic  is  charged  a  comparatively  aigh 
rate  Hence  a  railway  will  not  infrequently  be  found  to  charge 
a  higher  rate  for  a  short  haul  than  for  a  longer  one. 

Where-  the  competition  which  thus  leads  to  the  lower  rate 
on  the  longer  haul  is  from  a  route  cheaper  by  nature,  -  say, 
from  a  water  route. -the  resuh  is  not  only  inevital)le,  but  is 
justifiable  on  the  gen(<ral  groun<l  of  full  utilization  of  the  rail- 
wiv  plant.  The  rates  of  transportation  between  the  two 
competitive-  points -^  say  New  York  and  San  Francisco,  or 
Bo.ton  and  Savannah  -  will  be  low  in  every  ca.^e.  The  ra.l- 
^vav.  in  carrving  the  traflic  ut  these  low  rates,  enables  its  plant 
and  its  general  operating  force  to  <K.  so  much  more  service  for 

till'  community. 

Where,   however,   the  onii-etition  which  leads   to  the  low 
rati-  between  distant  points  is  simply  bctw.-en  rival  railways, 
Iho  ciuse  i^  not  so  plain.     It  is  by  no  means  clear  that  more 
scrvic..  is  got  from  the  same  plant.     The  outcome  may  easily 
be   not  tlKit  more  use  is  got  from  tin-  railway,  but  that  the  use 
is  got  in  a  ditri-reat  place.     The  coM>i)etitive  ix.ints.  favored  by 
low  rate^    mav  grow;    but  intermediate  points,  hampered  by 
higher  rates,  niav  -hrline  (or  fail  to  grow).     If  there  were  no 
ndlwav    comprtiti..,,,       if   there   were   but   one  railway,  or   if 
the  .•ompelia-  railway^  wct.-  to  unite,       there  woul.l  be  noth- 
ing in  111.'  c.MKlitiuns  uf  oi-eration  t„  make  rates  low  on  tlie 
iong.T  haul.     The  -eneral  presmni)tion  is  tliat  rates  should  vary 
with  .liMan.v.     A  longer  line  of  road  n.re<>aiily  cor.ts  more  to 
,,.,ld  and  operate  than  a  short  one  :  the  total  eo.t  nf  the  longer 
haul  must   b,.  paid  fur  somehow.     It  is  a  safe  gem<ral  rule  that 
June -should  be  higher  as  distance,  and  therefore  presumably 


^mmmmmmmmmmmimmmHm 


RAILWAYS 


375 


cost,  grow  larger.  In  other  words,  a  lower  charge  on  a  longer  haul 
must  stand  on  the  defensive.  The  ,, resumption  as  to  public 
advantage  is  against  it.  and  therc^  mu.t  he  dear  evidence  of 
public  gain  before  the  practice  can  be  said  to  be  justihed. 
This  principle,  long  disputed  in  the  United  States,  was  te.ita- 
tively  affirmed  by  the  federal  legislation  of  1887,  and  dc.rn- 
itivelv  established  by  that  of  lUlO;  the  act  ot  the  latter  year 
prohibiting  once  for  all  a  larger  charge-  on  a  slu.rter  haul  with- 
out express  authorization  from  the  Interstate  Conmierce  t  o.u- 

mission.  ...      r  •  •  i.        4. 

§  G.   Some  other  consequences  of  the  principle  of  joint  u,>t 

have  been  and  are  of  large  social  significance. 

Railway  rates  are  necessarily  flexible.     Even  though  rates  as 
a  whole  be  so  fixed  as  to  cover  the  whole  co.t.  there  is  no  clear 
relation  between  any  specific  :ate  and  the  spec-ific  cost  of  car- 
riage     The  absence  of  any  precise  measure  ot  cost  ..t  service 
makes  it  plausible  to  adjust  the  charge,  apparently  arbitrary  as 
it  must  be  in  any  case,  acc<,rding  to  all  sorts  of  real  or  supposed 
benefits.     Where  governments  manage  railways,  it  leads  easilj 
^o  the  .letermination  of  rates  on   other  grounds  than  those 
directly  related  t<,  transportation.     It  may  1k>  supposed,  for 
example  (according  to  the  protectionist  notions  so  widely  prev- 
alent), that  imports  are  bad  and  shouh!  be  discouraged,  winle 
oxports  arc  advantageous  and  should  be  promoted  -a  no.oa 
which  leads  naturally  to  high  rates  on  things  imported  and  h 
rates  on  things  exporte.l.     Such  is  the  practise  on  the  1  nr-. 
railways  at  present,  espcially  as  to  the  expoi^.     If  L-     ' 
dearlv  a  financial  loss  in  carrying  at  low  rates  the  good.  >eMnu  1 
for  export,  governments  would  hesitate  as  long  belore  conced- 
ing specially  low  rates  as  they  do  in  granting  direct  mone>  su  - 
sidies  on  exports.     The  question  of  money  loss  or  ^m.    s  o  • 
„.ure<l  when  no  specific  railway  rat.-  can  be  shown  to  nn  ol 
a  direct  loss.     Again,  low  rates  to  favor  a  part, cubr  se 
constituents,  or  a  given  locality,  will  be  snmlarly  eu^>  to  l.i  n. 
about.   an.l  may   be  similarly   m   appan-.l  ^^^^^'^  ;''';;  ''^ 
general  ways  of  rate  making.     To  arrange  railway  duig..  on 


!■  i  1 


iti 


n 


ii.ii 


h-'* 


376        PROBLEMS  OF  ECONOMIC  ORGANIZATION 

a  "just"  basii^,  as  is  the  aim  of  a  government  in  managing  a 
railway,  is  a  task  of  peculiar  difficulty  and  complexity. 

The  same  difhculty  exists,  of   course,  wl.<-n  a  government, 
though  it  does  not  itself  op<>rate  the  railways,  regulates  the  rates 
c,f  private  corporations.     This  is  what  tiie  government  of  the 
United  States  .sets  out  to  do,  as  to  tlie  interstate  traffic  under 
its  control.     The  Interstate  C^onuuerce  Act  of  1887  says  that 
mtes  shall  be  "reasonable."     What  is  the  standard  or  measure 
of  reasonableness  in  rates?     It  is  not  difficult  to  answer  this 
question  as  regards  the  general  range.     Rates  as  a  whole  shoidd 
not  be  higher  than  will  suffice  to  yield  a  normal  return  on  the 
capital  invested  in  railways,  a  "normal"  rc^turn  being  under- 
stood to  include  not  only  interest,  but  something  m  addition,  by 
way  of  compensation  for  risk  and  judgment.     Even  though  no 
absolutely  precise  settlement  of  such  a  rate  of  return  be  feasible, 
an  approximation  to  it  can  be  reached,  -  six  i)er  cent,  or  eight 
per  cent,  or  something  of  the  sort.     But  this  helps  very  little 
as  to  anv  individual  rate.     Whether  the  individual  rate  is 
"reasonable"  is  a  question  of  its  right  ailjustment  to  the  traffic 
demaml  and  to  the  best  utilization  of  plant  and  equipment. 
It  happens  that  this  question  of  principle  has  not  often  been 
deliberatelv  considered,  either  in  the  United  States  or  m  other 
,.o,mtries.     The   general   methods   of   railway   rates,   as   they 
develope.1    under   the    tentative    and   profit-seeking   ways   of 
privately  managed  railways,  have  been  accepted  once  for  all. 
That  rates  should  be  lower  on  bulky  g..ods  is  thought  to  be 
obviouslv  "  right."     Similarly,  the  existing  geographical  adjust- 
ments of  rates,  with  wide  variations  in  dilTerent  regions  and 
between  dilTcre.it  i)hu'es.   have  been   left  in  the  mam  undis- 
turbed.    Probably    this    rule-of-thumb    policy    has    been    the 
wisest  on.-.     Any  schem.-  of  synunetrical  rates  based  on  sup- 
posed principles  of  justice  or  naturalness  would  have  fettered 
the  fullest  development  of  tratfie  by  railways. 

§  7  Still  auotlhr  consrqu.uee  of  the  principle  of  joint  cost 
has  been,  in  th<'  Unite.l  Stat.s  .>siHTially.  a  perfect  chaos  m  the 
rate  system.     This  was  uninistakeably  the  situation  before  the 


rwrtS5 


■<*"i  lii  air-"  •; 


".  .S-bjStTSX  .-'^.- 


-aatfaiTi;^ 


RAILWAYS 


377 


!  i 


Interstate  Commerce  Act  wa.s  passed  in   1887 ;    and  though 
matters  have  mended  since,  much  of  chaos  still  remains.    In  this 
country,  as  in  others,  railway  rates  were  developed  tentatively. 
The  possibilities  of  carry  in-  bulky  goods  at  low  rates  over 
long  distances,  and  of  the  other  adjustments  of  rates  on  differ- 
ent articles  and  to  different  regions,  were  discovered  gradually. 
No  settled  tariffs  of  rates  existed  in  the  early  days,  or,  if  any 
existetl,  they  were  disregarded.     All  rates  were  '-special"  rate>  ; 
that  is,  were  reached  in  each  case  by  higgling  between  shipper 
and  carrier.     This  method,  <jr  lack  of  method,  no  tloubt  pro- 
moted flexibility  in  rates,  high  utilization  of  the  railway  plant, 
and  economy  in  its  operation;  l)ut  it  caused  also  grave  evils. 
One  great  evil  was  the  power  in  the  hands  of  railway  managers. 
With  the  widening  of  the  market  due  to  cheat)  transportation, 
the  price  of  this  very  transportation  became  of  crucial  impor- 
tance.    Success  in  i)usiness  was  possil)le  only  to  the  man  who 
got  as  low  rates  as  his  competitors.     Favors  in  rates  might 
easily  mean  a  ane.     The  railway  traffic  manager  couhl 

make  or  unmake     .is  man  or  this  town.     Such  power  over  the 
fortunes  of  others  can  be  intrusted  to  very  f  n  without 

being  abused.     It  constitutes  perhaps  the  strongt  'i  for 

public  control,  whether  directly  b>-  government  maii.„ement 
or  indirectly  by  government  regulation. 

In  the  United  States,  the  power  was  sometimes  used  corruptly. 
Those  in  control  of  railways  -  managers  and  directors  -  ar- 
ranged for  thems(>lv(-s,  as  trad(>rs  and  shii)pers,  lower  rates 
than  other  shippers  gut.  This  sort  of  practise  is  not  only 
corrupt,  in  that  it  violates  the  fiduciary  obligations  >  <lirectors 
and  managers,  —  their  most  obvious  legal  and  mon  '■  duty  is  to 
manage  the  railway  with  a  single  mind  to  the  advantage  of  tli.' 
shareholders;  it  is  als..  incon.-i^tent  with  the  fundamental  pn.i- 
eiple  that  competition  sb.uuld  be  on  even  terms.  Here  the 
game  was  plaved  with  loaded  dice. 

But,  in  the  main,  favors  in  rates  were  given  not  in  arbitrary 

or  corrupt  wavs,  bur  umur  the  ^trt--r^  o!  Kl.i».!..     !    -' 

That  competition,  as  has  ahva.ly  been  noted,  is  made  peculiarly 


>; 


4,- 


'III 
II; 

m 


378        PROBLEMS  OF  ECONOMIC  ORGANIZATION 

severe  because  of  the  conditions  of  joint  cost.     Rather  than  let 
anv  particular  item  of  traffic  go  elsewhere,  the  railway  manager 
"ll  ac  ept  any  rate  which  yields  something  over  the  expense 
;l;aritivei;  shght)  entaile.1  by  that  specific  ,tem     A  large 
hipper.  in  doahng  with  con.peting  rai Ways  can  play  off      e 
ag  unst  another,  and  secure  for  hin.self  special  rates.     In  the 
ot  Ivs,  corruption  or  sen^i-corruption  of  the  traffic  manager, 
_sav  by  offering  him  shares  of  the  large  shipper's  corporation  - 
nlaved  its  part.     But  competition  between  railways,  and  their 
•  iJvitable  eagerness  to  "get  the  tonnage,"  was  the  mam  cause 
of  the  favors  to  large  shippers.  ....  -i 

Not  infrcciuently,  in  cool  recognition  of  this  situation,  a  rail- 
way would  deliberately  select  some  individual  shipper  as  its 
agent  in  securing  what  was  regarded  as  a  "fair     share  of   he 
competitive  traffic.     Such  a  favored  person,  of  course,  had  a 
great  advantage  over  others  in  the  same  sort  o^  business     He 
could  carry  on  operations  on  a  larger  scale,  and  was  hkelv  to 
wax  strong  an<l  rich.     This  was  not  unwelcome  to  the  railway, 
so  long  as  he  enabled  it  to  hold  the  traffic  as  against  rival  roads. 
But  eventually,   in  not  a  few  -ases,   these  favored  shippers 
became  so  strong  and  rich  that,  from  having  been  the  servants 
of  the  railways,  they  become  their  masters.     Their  operations 
,,ew  to  be  on  so  huge  a  scale  that  they  could  throw  traffic 
from  one  road  to  another,  and  bring  any  ami  every  road  to 
accept    their  terms;    that  is,  to  give  them    lower  rates  than 
the  ordinarv  shipper.      Such  was  the  ease  conspicuously  with 
the  Standard  Oil  Company,  which  began  as  the  favoreu  ^»-..pper 
„f  one  of  the  Eastern  trunk  lines  (first  of  the  New  \ork  .  en- 
t,.,l    then  of  the  luie  also)  and  by  this  advantage  finally  wa-s 
,,;,UU,,1,  „r   at    least    aided,  to  get  into  its  han.ls  so  prepon- 
..  .ruit  a  ^haie  of  the  Imsine^s  of  n-fining  and  shipping  oil  that 
i.  eould  virtually  dietat..   its  own   t-  rms  to  all  the  ra.l^^^•s. 
Su.h.   too,   was   the    .levelopment    of  some  of  the  great  Chi- 
cago i)a('kiiig  limises.  _ 

Tl.cM-  extraordinary  .effects  of  raihsay  competition  show  the 
modern  busine  ;  sN.tem  at  its  worst.     They  have  unexpectedly 


■KS-fliiilsrai.-'.'ST— i!R55asr!s«'a;  ■Ki» 


RAILWAYS 


379 


and  artificially  accontuatcil  the  tread  toward  large-scale  opera- 
tions ;  they  have  placed  a  premium  on  untruthfulness,  uitrigue, 
bullying,  spying.  Yet  it  must  be  said  also  that  this  same 
factor  of  railway  competition  has  immensely  promoted  effi- 
ciency in  operation.  Every  railway  manager  was  put  on  his 
mettle  to  carry  the  tonnage  at  a  profit,  even  with  low  rates 
Freight  rates  on  American  railways  are  remarkably  low,  an<l 
especially  low  on  that  lonR-distance  traffic  which  has  been 
most  the  subject  of  competition. 

§  8.    "  Rebates,"  of  which  so  much  is  in-ard  in  discussion  of 
American  railway  n^gulation,  are  not  bad  per  se.    They  are  bud 
if  not  given  to  all  shippers  on  the  sa  ne  terms.     'I'he  tlung 
which  legislation  and  public  opinion  try  to  prevent  is  inequality 
of  rates.     Rebates  anil  the  like  devices  are  objectionable  be- 
cause they  are  the  means  of  discriminating  between  difiereiit 
shippers.  "  In  the  early  days  when  railways  we;e  looked  on  as 
businesses  like  any  other,  it  was  natural  to  leave  their  charges 
to  the  higgling  of  the  market  and  to  accept  without  objection 
those  inequalities  which  higgling  always  brings  alx-ut  and  at 
the  same  time  ordinarily  tends  to  minimize.     As  the  mimense 
importance  of  railways  in  atlVcting  ..ther  l>usiiiesses  came  to  be 
seen,   higgling  and  discrimination  fell  into  opprobrium,   and 
rebates  and  the  like  devices  were  prohil)itcd. 

Rebates,  again,  are  not  welcome  to  railways.  The  railway 
manager  (unless  bv  chance  in  corrupt  collusion  with  a  shipper) 
does  not  wish  to  cut  his  rate;  he  wishes  to  get  as  much  as 
possible.  In  the  vast  majority  of  cases,  he  is  forced  to  a  con- 
cession by  the  competition  of  a  rival  route. 

The  natural  step  for  competitive  railways  is  to  put  an  ea.l 
to  competition  l)y  combinin-  to  llx  rates  once  f.)r  all.  Hence 
railwav  pools  and  coml)inations  appeared  at  an  early  date,  a. 
a  means  of  putting  an  end  to  "n'  lous"  or  "cutthn.af  c.m- 
petition.  Such  pools  are  hard  to  oM  together,  at  leaM  under 
the  English  and  American  law,  which  make  them  voi.l  an,l  non- 


ecrorceable ; '  but,  so 


far  as  ti;ev  go,  liitv  en 


rck  llu';  iCii 


Icucy  to 


i"l] 


I 


1  Coniparo  C'hapttr 


(i:i. 


1. 


380        PROBLEMS  OF  ECONOMIC  ORGANIZATION 

Ttio^r  orp  thus  a  means  of 

opportuiuly.     Whether      J^^^  ^^^j^^.^  i„au.tries,  uhnost 

,,„nhmations  u.ul  P"''^;  ^^S"^ "^"^^    '  ^^  ^^  them  such 

all  careful  oUservor.  ^"^;;;^->^Xlur^.t.rstate  Commerce 
prohibitum  IS  umv.se      Nom  i  j  the  prohibition 

AH  prohibited  -'""---,  :^^;:;al  unt.monopoly  act  of 
^vasnmae  even  more  .ha>tu  b>  tn   !.  ^^^^^^  Commerce 

,,,0,  Unown  as  ^^^^^^^^^^^^^la  the  repeal  of  this  sort 
Comnuss^onhasrep      ubr  ^^^_^  of  pools  and  rate  agree- 

of  leg.slatu>n,  and  '^^^  ^^^^^      u\c  nu>n  of  being  sup- 

ments.  The  anxu.us  ^-^  "^^^"^  .^.  j^,^  ,,y  relaxation  of  the 
P-1  ^"  ^"^  "!'7lrt.-n  though  the  recommendation 
stringent  restriction  ,  anc     u. .  ^^^^^^  ^^^jj^^  „, 

is  coupled  with  the  proviso    la    t  ^^^^  ^^^^^  ^^^ 

agreement  shou  d  be  -'^•^;  ;,,,  ,Usencc  of  this 

,,,  Interstate  ^"-^^  ^  ,  ^.J^ion,  railways  have  been 

„u.ans  of  escapmg  tlu  stros  I  ^^^^^  ^^^.^^^  ^^j^^^,,.,,^,^i 

'-P"'^<"^'  ^'l  '-"t'";  "t  e      .iaation  of    the   railway  net 

'"''-'  'T  ;:;::^thie    wc.   on  so  rapidly  during  the  twenty 
iato  great  systems,  ^^hul  ^^^^      ^^^  ^^  ^^^„, 

years  after  the  passage  of  th.   .to  ,  ^^^__^^^^^^  ^^^  ^,^^ 

due  solely  ..r  .ven  '•''-"•V"  .*''V.;  heir  be  t  means  of  self- 
fact  that  railways  -r;;;l';P-;  >  ;^  ,,,  .,„  ...ways  has 
d,{.nse  against  ec.mp.tmo..        »"  ^^  j^  ,,^,,  „,,uibited 

aiscnm.nat.on.  >   t     >a  ,,,,„,.„,.l  n.nibinatums  and 

::*:.;';::7::-"--- '■••' '■"■"■""""'" 

""'n:« «; r":::;;r,;::::n;t'::^:;: 

(■„r,,„rotions, ,.,..!  >■>  H"  ""'        »  .      i„i„„  ,„„  oo«- 

|ij„,l  l,v  «,i,T,-ss,v  l«vs.    A"  "'""'".       „(  ,.,„„MtiU.m 

.!■     I    II   .ni.'i\l'    ine  i-hiuina>ii>n  ui  j 

tributed  to  this  lultviimni. 


RAILWAYS 


381 


through  the  consolidation  of  the  railways  has  contributed  even 
more.  So  long  as  railway  competition  "crsists,  it  will  always 
be  difficult  Tor  traffic  managers  to  resist  the  temptation  of 
securing  larger  tonnage  by  favors  to  this  or  that  shipper ;  and 
ingenious  tlevices  will  l)e  sought  —  in  tiie  way  of  allowances 
for  switching  or  for  damages,  manii>al;itii)iis  of  one  sort  or  an- 
otlj(,r  —  for  "defeating"  the  noiniiud  rate.  The  prohibitions 
and  penalties  of  legislation  would  be  iniide  mueh  more  effective 
if  railways  were  allowed  to  make  rat(^  agreements  openly. 
Here,  as  elsewhere,  our  pu'!)lle  policy  is  still  ruled  i)y  a  panic 
fear  of  monopoly,  and  an  unwillingness  to  face  the  essential 
problem,  how  to  regulate  monopoly  su  cessfully. 


IH 


t:| 


h:L 


)H 


w:n 


<  ti 


i  if 


^1 


T.: 


lu 


ih" 


CHAPTER  01 
Railway  Puohlkms,  continued 

»    >r,  f>.P  most  important  agents  in  in- 
§  1.   Railway,  have  ^^-^^  "t^t^oJ^n  times  and  in  bring- 
ereasin,  tin-  .lispantK.  of  -^^^]^^^  ^^,,^,  inairectly, 
ing  about  gr..at  fortunes     Th  >  ju.v  j.^tion. 

Uy  pnmu.tin.  the  general  '^f^'^^l^^^Z.  Ay ,  through  the 
-n-y  hav.  had  tlu;  --^;'''  .r^,  ':,•,'  ^owth,  f.ough  the 
tcMulen.y  to  inereasn.g  ga>n.   •;   '^  j^  ^,^.  possil,ilities  of 

eon..ntratiun  of  the.r  nwn..^u      '  "  '  elTeets  on  the  .hstri- 
«.-»l'^^'-   UKUUpuUdU.  h^^ 

!;::::  ::;:r;:;;hth:::::  of  aev.opn.^^ 

;i:athM-.>nt.hapterisehiHlyeom.n>.^^^^^  ^^  ^^.^^^^ 

Ki,st.  as  to  inercasing  g^uus  f'"-/''  ;  ^     '^;,,,^.,  ,  ,,,,,try 
i„  ,  g,o.ing  eountry  (and  the  rad.a^  d>  1         > 

^  i    l..rLr..lv  in  the  position  of  goo<l  land,     n  u.i 
to  grow)  1.  larg<l>   "»  l  :,,,.,.^,„u.ut  of  econonue  rent. 

eeding  .I.MX.t.  toward  a  ^-^      /^'J  ^^.^,  ^.,,„,,,i„,  to  make 

'V"";'     ;:^:t      so,,,  lin..  hav.  l....t..r  natm-aHoea. 
'         'u'  r         nu.^..wVo^k(V,.,^all^.ulhasan..xn1. 

ro,.t.alongariv.rvan..yl.a~anndva.^^^-^^^^^ 
'    Hut  unrvrngn.at.Tpart.>pia>.'i>'>   grnvKu--- 


RAILWAY  PROBLEMS 


383 


Population  clusters  along  the  line  of  a  railway ;  towns  and  in- 
dustries attach  themselves  to  it.     Its  traffic  increases,  while  on 
the  whole  the  expense  of  conducting  the  traffic  becomes  less. 
Though  other  railways  may  ho.  built  in  such  way  as  to  compete 
with  it,  the  established  railway  has  an  advantage  which  can  be 
lost  only  by  very  bad  management  or  very  unexpected  changes 
in  the  course  of  industry  or  invi'ution.     One  great  source  of 
advantage  is  in  terminal  facilities  at  the  citit^s.     I'rban  land 
becomes  expensive,  and  the  railway  wiiich  got  its  land  cheap 
in  the  early  days  has  an  advantage  over  compctilors  who  try 
to  enter  in  later  days.     It  is  true  that  tliis  sort  ol'  advantag<', 
like  others  that  rest  on  social  causes,  is  sul)ject  to  ciiange  and 
possible  decline  with  shifts  in  population  and  vvitii  uew  inven- 
tions.    The  subway  method  of   url)an   transportation,   which 
has  so  profoundly  atTected  site  values  in  Xcw  York,  has  also 
deprived   the   New  York  Central    i^ailway  of   the   dilTerentiul 
advantage  which   it  formerly  |>oss('ssed  from   being  the  only 
lini^  with  ■       isscnger  termmal  in  the  heart  of  the  city.     None 
the   le.ss,   Xhv  advantages  of  an   estal)lished   railway   tend   in 
general  to  increase  .steadily  with  tiie  growth  of  jKipulation  and 
industry. 

The  questions  presented  by  this  advnnce  in  value  are  tin' 
same  a.s  those  prcscritfd  by  the  same  advance  in  the  ea<('  of 
url)an  sites  and  aiiiii-ultural  land.  The  increase  has  been  no 
more  r!ipi<l  in  the  railways  tiian  in  tlie  other  eases,  jirid  in 
gener.il  has  been  less  striking  lliati  that  in  the  value  of  url>;ni 
sit(  .  Sometimes  it  is  i)ropose<i  to  (ax  raibvavs  at  .an  csperially 
heavy  rate,  or  to  compel  tliem  to  lower  their  eliarges,  bee.ui-(> 
tiu'ir  gains  are  thus  temiiiii;  to  rise.  It  may  lie  de>irable  to 
capture  some  of  this  uiiearne(|  incretneiit  ;  but  it  i-  not  nime 
desirable  than  to  ca.ptiire  olher  hlie(  •■  of  the  same  surl  of  un- 
earned increment.  Tlie  fact  (hat  ;i  nubviiy  has  m  "framhi-e" 
or  is  i(  '"public"  industry  is  onen  urgtvl  as  a  re;eon  lor  vpcciid 
treatment.  Mul  (his  is  to  bliml  ourselves  witli  name-;.  A 
"franchise"  simply  iuean>  that,  under  the  tifliMii  liities  of  our 
legal  and  constitutional  .system,  th(>  proee>s  of  regulating  in- 


<'l; 


Hm'i 


334       PKOBLEMS  OF  ECONOMIC  OHGA.IZATION 

•      is  less  fettered  than  is  that  of  dealing 
corporated  companies  i.  ^^^^  j;     ^^.^,,,iiy  bring  a  substantial 
,vith  real  property.     It  does  not  necc.       V         ^^^^  ^^^^ 
economic  privilege.  ^^^^J^^^  .  "pui>lic-  or  "pub- 
at  the  rc<al  problem  ^^^^^^^l^^^,  i^ve  little  meaning  m 
lie  service"  industry,      lb  >     i;  ^^^  ^     ^^^^^^^  ,,,  .pin.on 

,,emselves;'    they  are  sm  pl    a  ^^^^  ^^  ^.^^^^^^^.^^  .^ 

that  a  given  industry  -^^^T^n^    ,,i,,  .f  railways  is  con- 

restriction,     ^^o  fur  as  the  :^'l  '      '  ^        ^^„^,.  j,,  them  as  for 

ccrned,  the  c,uestion  m  prmopk  is 

other  site  values  that  t^id  to  r.^.  .^^^^^^^^^^  ^,  ^.^^, 

\nvr^^^-^^^^^^^'''''''"[^Zn.  to  investors  and  for 
.ays  from  the  -^7;^;:Xmor:\lifficult  than  it  is  with 
business  management  i>  m"^  ,nunicipal  monopo- 

,,,ard  to  urban  sites,  or  wih^^^^^^^^-^^   ^^^^^   ,,,   ju^nbled 
lies.     Extra  gams  from  ditto  ",  „j  ,vith  those  other 

lith  the  ordinary  ^^^^^ ;;;'j:^Zll    Though  separable 
extra  gains  which  --  ->i    "  -1  ^^^^^^^  ^^.^^^  ^,^.  ,,^.,i,,i,n  .„ 

'"^^T''''""h ';;:'"-:;  reasons  for  the  public  regulation 
connection  "iin  im   » 

,f  railway  operations  ^  eonsequences  are  the 

^2.   More  unportant  m  tmir  both  toward  the 

eoncentration  ol  couti  .1  m  •     ^-^..^  .,f  eompetition. 

,enceotn.onopoly,in-o>^^^'^-^^^^^^^^ 

The  cu.icentratu.u  of  »""<';"'  i^,,,,  b^v.-  pernntte.l 

^-•M-H>..t..M.y  tbe  way  in      huh  oiK       ^^^^^^^   ^^^    .^^ 

,,,e  organisation  of   -n--'"'-  *"''      ,^,   ^^,,.,  b.-  admitted) 

securities.     1 se  L'^*^;^'^'- .^  ^Lincss  ethics,  have 

,.,.,scncss  in  th.  l"-'^'''':;  ^^^i^  ^^ 
b,„,lcdt..so..u-ofthemostum>.Uo. 

own.rsbii).  ^,         „f  stock  is  a  ccrtifi- 

ln^tvictc..,.n..t.n.     1.;..    ^^^^^,^^^^^.      has  been  con- 
^.^^,,.,,,,  , be  stated  an>ount      ^^  ^^   ,nuy  or  may   not 

trUmted  to  the  enterpr.se.  ,^^_^j  ^^^,^.,      our 

„u.an»nyihin«oftbeku.d,.ll'«^'" 


"^•v:-^: 


.%hi^. 


RAILWAY  PROBLEMS 


385 


laws  have  been  so  fraiaed  that  certificates  of  stock  have  been 
handed  out  with  little  regard  to  actual  investment.     Very  com- 
monly they  mean  nothin-  but  rights  to  vote,  and  so  to  control ; 
with  perhaps  a  hope  that  at  some  distant  time  in  the  tuture 
there  will  be  a  dividend      Anion-  the  railways  esi)ecially,  a 
common  practise  has  been,  and  still  >s,  to  issue  "blocks"  ol  se- 
curities in  exchange  for  a  given  contribution  to  the  enterprise; 
say  SlOO  in  stock  and  SlOO  in  bomls  -  or  S2()0  in  n..nunal 
value  of  securhies-for  every  SlOO  actually  i)Ut  in.     "Over- 
capitalization" of  this  .sort  has  been  a  well-nigh  universal  char- 
acteristic  of  corporate   oiienitions   in   the   Tn.tcd   states.     It 
has  led  to  bad  resuhs,- results  l.u.l,  however,  not  so  much  m 
the  way  usually  supposed,  us  in  uUinudc-  consequences  on  the 
ownership  and  control  of  the  railways. 

Overcapitalization   is   not   in   itself   a  rea.ly   road   to   royal 
profits.     The  printing  of  sto.'ks  and  bonds  is  no  more  a  source 
of  riches  than  is  the  printing  of  paper  money.     It  s.'curities 
which  represent  no  inv.'stment,  or  a  Ic.  s  inve^tnicnt  than  their 
face  value  indicates,   are   non.   the   less  inc..me-y.eldmg    and 
profitable,  it  must  be  because  the  enfrpriscs  which  they  rep- 
resent  are   profitable.     The  real   causc>  of  gain   is  either   good 
.nanagement  or  monopoly  :    the  greatest   gain  comes    rom  a 
combination  of  the  two.     So  far  as  raihvavs  or  other  mdustr.es 
are  monopoHstie  in  charact.-r,  sucv^-ful  overcapitalization  -^ 
Hucces,sful,  that   is,  in  the  i.ecnniary  s.nse  -  is  the  resul    ot 
high  prices,  not  the  ..aus.>  of  liigh  i.ri<-es.     A  monopoly  will  m 
any  case  set  its  prices  as  iiigh  as  it  can.* 

To  this  gen.-ral  statement,  as  t..  almost  all  g.Mieral  ^tatc- 
n.cnts  in  economics,  son,.-  ,,ualilicati.m  must  b.'  attached.  It 
will  hapiu'i.  at  tiu.es  that  ov.Tca,,italization  docs  cause  at 
Irast  a  cliuging  to  high  priees.  Tlu-  manag-rs  of  an  .ner- 
.,api,aliz..d  iuo,...poly  may  have  to  face  the  fact  that  great 
l,|„,Us  of  securities  are  nutstandiug.  very  liUely  -"'''I  ''-V  ^'"•" 
prcUressors.  and  now  hel.l  by  all  sorts  of  investor.,  1  hey  are 
then  loth  to  let  go  any  slice  of  i.>  pmlit..  We  have  seen  that 
I  s.r  Hook  II,  iiiapt.i  i:..  5  <■'■ 
VOL.  II  -  -e 


I!' 


iii 


^.: 


^n 


!s.-iaK^-l;C..     t^^L 


wssFmmim^immwwM^' 


386       PROBLEMS  OF  ECONOMIC  ORGANIZATION 

oftea  the  monopoly  principle  of  ---^^  '^f .  P^hich  are 
InluHl  in  its  full  sweep,  especially  in  mdustnes  vvhich  are 

to  public  op.mon,  ni  the  waj  ol  loner  ra 

„,    ,,  .re   likely   to   co.ue   when   eapitahzat.on   ha.  not 

""^"Iher   there    has    been    in    fact   overcapitaUzation     and 

(hlhtult   niatur  .  ^^^   ^^^^^^   ^^.^e 

presents   a   perp^ex.n,   c.^      ^  \  J^,,,,,  ,,a  when  first  pnt 
usually  ()vercapitali/.e<l.     Hut  at  uu  om  Vuronean 

„„.  l,.,r,.  .,t  .■■.mi..K^  i"l"  o.>larBonu.i,ta  i.iid  Lrttcrraoirts 
TO  ,,™  <  . .  m,o,l  ,k..a,U.  after  ..,....,0,  an,.  .»  com  .,„« 
r  ,1,..,....  a,„l    u„„„stak..ahU.  mvo...nont  oi  a.  ht.oaal 

W  ,,l  tlu-  t..tal  inv,.»t.>.>.nt  linally  ivas,  a.i.l  i.l.at  llio  r,  latum 

1 ;:..,.  ..u.. ..".  »-.«„, a.-». ■;:;;;:;;'•  ::" 

.M-     u  .      ..,,■      (''ireful  separation  was  rarel>   niaae  ua 

:;:vrL::;^op:r^ 

'   Tb'  le  is  further  co,nphcate.l  l.y  the  nuest.<.n  of  a  ,^p 
all  .  u....  for  risk  and  fur  skill  in  uianaKcnu-nt.     So.no  ra.l.a> 
tZwrn   iiuaneially  profitable:    <.t hers  not  so.     N.me  have 
Lu,halouM-odofuoreturnsandun<.r^l-^ 
'...ts;    others  have  earned  Rood  returns  from  the  very   sta.t, 

.T. :: --f ''''"'::  i;-"re"^^^^^^^ 

,,    ,„    ,„„„.„, I     „,ll,..Ut     ,..U>,.„..1M.....    ■>-    'f ';..'"    V|„.|Mtt,>h,.sl,...M.,.....h 

i„v....,.r.a..a'.....si.l.'>l..-ul.t„M.m.l.,...tl.,r      UuU ^,„_,i,^„^.  „,„ 

ti  I'llil  llMl'l  I  r    1.  IVtlMl     Ilil^' 


&«:':^3i2ii 


RAILWAY   PROBLEMS 


387 


i 


some  on  an  inflated  capitalization.  Tlie  differences  are  partly 
due  to  general  physical  and  economic  causes,  partly  to  varying 
judgment  and  skill.  The  mere  fact  that  a  railway  has  been 
handsomely  profitable  is  no  more  a  proof  of  special  advantage 
or  monopoly  than  is  the  mere  fact  that  a  mercantile  or  manu- 
facturing enterprise  has  yielded  a  fortune.  In  tdl  such  cases 
the  quality  of  the  management  is  an  all-important  factor. 

It  is  not  easy  to  say  whether  railways  in  the  United  States 
have,  on  the  whole,  been  abnormally  profitable,  and  hence 
whether  their  overcapitalization  has  concealed  a  large  element 
of  monopoly  profits.  Successes  have  been  balanced  by  failures, 
eventual  large  returns  by  long  initial  periods  of  no  return 
at  all ;  while  at  the  same  time  problems  of  management  have 
been  such  as  to  call  for  the  highest  business  ability.  It  may 
be  true,  as  is  commonly  maintained  in  behalf  of  our  railways, 
that  in  view  of  all  tlu;  risks  and  all  the  enterprise  and  all  the 
skill,  the  gains  from  them  have  not  been  greater  than  those 
secured  by  the  inv<\sting  classes  in  in.kistry  at  large,  and  in 
that  sense  have  not  been  disproportionat»>  to  the  energy  anil 
sacrifice  involved. 

However  this  may  have  been  in  the  past,  the  case  is  likely 
to  be  different  in  th(>  future.  The  stage  of  .levelopment,  un- 
certainty, competition,  is  largely  passed:  the  era  of  compact 
monopoly  is  impending.  It  is  certainly  ilesirable  that  careful 
watch  be  kept  on  the  furtlu'r  investment  of  capittil  arid  the 
furth-r  issue  of  securities,  and  that  proper  accounting  should 
distinguish  additions  to  plant  from  operating  expenses.  The 
legislation  both  of  the  federal  gov(>rnment  ami  of  the  several 
states  aims  in  that  direction.  Th.'  time  has  come  for  sale- 
guardi'^g  the  p.ibhc  rights,  by  making  it  clear  just  what  is 
the  actual  investment  in  th(>  monoi)oli<'s   of  the   present  and 

future. 

It   is  doubtfu.   wh.'ther   the  whole   mechan..ni   of   irregular 

and  swollen  capitalization  was  r,    any  time  necessary  or  wise. 

Whv  not  i.rovide  once  for  all  by  law  that  s.rmities  shall  be 

;.,,.;,}  ,,.,iy  t..  reonvent  what  has   be.'u  investi'd?      It  is  true 


Ft] 

|U 

'    i 

.1 


-^^mmi^smmsbm:^ 


388        PROBLEMS  OF  ECONOMIC  ORGANIZATION 

.hat  .c.a«n,.atio„™u.  have  ^-"^'^^^^Z::^ 

.„  (ana  p..>Uc  J7;- ;7  ro,*;2) It  no  .-e  tha„ 

r:  z  ;r«::  r: :.« i:::; "»'  --  -  -r'-: 

"^..Irv      Possibly,  too,  there  is  a  se.luet,ve  eft..t 
cause,!  no  '"     >;^    ™   Jj^  ,„„,  „„  ap,K.an.nce  of  gett.ns 

""  '';;'''°';:    n,     t        A  -ore  sin.ple  and  .traishtfonvar.l 
sometlnn;  tor  nothmfc.     .  „,.„j,i,,,  ,„ijTl,t  thus  have 

''^'"''''■'.':-:/';,r:y  o     -t.     ..,.  »  *».,.  „ace>v„u,a 

progress  of  rail\Na>  i  ivstriction  of 

^S.   Uruim  „„,,tn.l  hv  the  familiar  class  of 

has  promoted  acquisition  of  control  l.> 

railway  mas..ates.  investment   (and  pro  <a»^> 

The  seiKiration  of  control  irom    i 

"■»^ '"■'■"■'","„",.:.■  n le.l  t..n,l.  l.y  .1...  sale 

Tliey  lire  supposea  lo  » <  "»    •>"  '  ,l„.,„.,.lvs    the 

of ■»"■• ' r/7*r\;:; «  .«.  i'l'outever 

"'"■'-^-; ;f":r:;:trNo3,t;;,eyw,u,.,Miue.o 

having  shouldered  aiu    M>lv>.     a.  u,,t  usually  the 

." ^^"'^'^'7:::ia:"zr^::l,:^n:.'^^^^^ 


RAILWAY  PROBLEMS 


389 


St 

4 


credit,  take  the  securities  on  their  own  responsibility.  Usually 
they  are  associated  with  a  banlcing  firm,  which  exacts  its  toll 
for  backing  and  indorsing,  and  acts  as  middleman  in  eventually 
disposing  of  the  securities.  Bankers  as  well  as  promoters 
necessarily  assume  some  of  the  risks.  No  doubt  the  purchasers 
of  the  bonds  are  often  deceived ;  and  often  they  deceive  them- 
selves, thinking  that  a  so-called  "bond"  has  a  high  degree  of 
security,  even  though  a  rate  of  interest  is  offered  which  on  its 
face  tells  of  a  risk  involved.  As  time  goes  on,  however,  with 
misrepresentation  or  without,  the  prior  securities,  which  have 
the  first  claim  on  the  profits  and  involve  the  least  risks,  get 
into  the  hands  of  the  general  investing  public,  and  the  shares 
of  stock  remain  in  the  hands  of  the  projectors  and  Ijankers. 

Shares  of  stock  mean  ownership  and  control.     In  the  eye  of 
the  law,  the  hoUlers  of  bonds  are  simply  creditors,  entitled  to 
their  interest,  and  in  due  time  to  their  princi|)al,  but  quite 
without  voice  in  the  mana«:;enient.     The  stockholders  are  apt 
to  be  a  shifting  and  speculative  l)ody.     The  stock  itself  in  the 
early  stages  commonly  has  little  prospect  of  dividend,  and  is 
valuable  for  the  time  being  only  becj.ase  it  si'cures  control.     It 
is  bought  and  sold  at  low  figures.     It  is  apt  to  fluctuate  sharply 
in  value  because  of  the  al)rupt  fluctuations  in  the  financial 
prospects  of  railways.'     It  is  precisely  the  sort  of  security  that 
finds  favor  for  speculative  purposes  on  the  stock  exchanges. 
The  original  promoters  sell  out  more  or  less,  as  they  find  the 
price  to  be  tempting.     They  are  concerred  much  more  with 
the  current  ciuotations  of  the  stock  than  with  the  permanent 
prosecution  of  the  enterprise.     The  original  notion  of  a  joint- 
stock  company   -   :i  si-t  of  p(M-sons  associated  in  a  conunon  ven- 
tu.  ■--(|uitedisai)i)ears.     Each  holder  tries  to  get  the  better  of 
the  others  by  buying  cheap  and  scHing  dear. 

These  are  the  coiiditiniis  under  whi"h  the  "great  operators" 
appear  an<l  under  which  the  vast  railway  fortunes  have  been 
made.  (Ownership  of  the  stock  and  control  of  the  railways 
get  into  the  hands  of  shrewd,  able,  daring  men.     These  see  the 

■'  Sec  till.-  jjrvrediitg  .•'MMpt-r,  §  '-. 


'  ! 


V 

I 


330        PEOBLEMS  OF  ECONOMIC  OEGANIZATION 

po.W«os  o.  future  ,ai„  »Jen  "-^  --frH^^atte 
Very  likely,  once  in  secure  ~""°'' *!T  '  ,eturus  to  tbcm- 
propertie,  are  ''^^"''^-^^•^t^Zo^'^^^^y-  But 
.olve.,  an.l  even  """« 'f '  '  3^„„y  „t  stock  speculation. 

they  come  into  con^ol  '• '  *«  ;- >™  ^  ,.,„,„«,„,  OoukU, 
Sneh  is  the  explanation  ot  the  rcl,i.o  ^^^  ^^^ 

and  their  fellows.     The  '"--"^"^^^^'^^l  ™„vays;   they 
the  original  projectors  and  Pr"""='»-J  ,^j,,  .^t 

are  the  interlopers  who  secured  control 

-rroC^ndaWethe...^^^^^^^ 

Tr::nc  --  ---  rtir;::^'  ^ht  ret 

or  .enricorrnpt  manipu^.0-;      «  r    ->_  ^^  ^„  ^„„ 
trol  may  "  wreck    it ,  mav  securities ;  and 

financial  failure;   may  clepro..  the   m  Conversely, 

then  buy  up  these  secunt.es  at     he    o.  pnc  .^^.^^_ 

they  may  manipulate  the  account    so^asjo^g^  ^^^^^^^^  ^^^ 
tion  of  financial  success,  raise  the  i        _  ^^^^^  ^^^^^^ 

«eU  at  hi.h  ,.ices  to  Uie  out.u^  -^^n^^^^  ^^^  ^^  ^^^^^  , 
the  bubble  has  burst.     A  phase  j^  ^^  ^^ij^,,, 

.hen  other  railroads,  or  a^^  ^-P^  ^^^^  ^^^  ^,^,,i,,a 
sle..pin,  cars,  termuud  c^mpamcs  g  ^^.^  ^^.^^^^^  ^^  ^ 
or  boURht  by  the  insulers,  ^'""'[^y  defrauded  by  these 

handsome  profit.  Somefmes  ^J^^^^  ^^  ^,,^,  .^ey  are 
performances  ar.  the  -^^^^^^^^;,X  do  the  same  thing 
other  stock  jobbers  =-'^';'"'^^*""; J," ;.  The  greatest  harm 
if  they  had  the  wU  and    he  <'inx     "^   •  .^  ^,^^  ,^,,,,^ 

,_,.Uisademond..aUono^..^^^^^^ 

community  wluch  ha>  to  -  ^^^^^  ,t   has  been  the 

Still   another   phase   ..f   msuh    m .  n  P  ^^^^ 

manipulation  of  rat.  ..t».^dv^i^^^^^^ 
managen*;   promoted,  a.  h,t-  air*  a 

i  Sec  ("hapUT  60,  §5  &,  7. 


RAILWAY  PROBLEMS 


391 


I 
I 

e 
e 

g 
n 

58 

le 
1(1 
d- 


bility  which  attaches  in  any  case  to  railroad  charges.  The 
spirit,  good  or  ill,  which  animates  the  leaders,  spreads  in  this 
case  L  in  others  to  all  parts  of  the  enterprise.  Not  only  direc- 
tors and  influential  stockholders,  but  managers  and  sub- 
managers,  secure  their  pickings.  A  whole  system  easily  comes 
to  be  honeycombed  by  corruption. 

These  evils,  all  closely  connected  with  the  peculiarities  of 
corporate  organization  in  the   United  States,   have  been  so 
glaring  and  cankerous,  that  the  most  ardent  supporter  of  private 
industry  must  sometimes  stop  and  consider  whether  even  the 
greatest  benefits  can  offset  them.     No  <loubt,  it  is  possible  to 
exaggerate  the  evils  of  the  situation ;    and  it  must  be  remem- 
bered that  thev  have  not  been  peculiar  to  railways.     They 
have  been  part  of  a  raw  stage  of  industrial  development.     Nor 
have  they  been  all-pervading  among  the  railways  themselves. 
Though  hardly  one  has  been  without  some  touch  of  dishonest 
manipulation,  many  have  never  been  deeply  tainted  with  it. 
Even  where  the  worst  has  been  experienced,  the  community 
at  large  has  been  mainly  responsible.     The  whole  situation  has 
been  accepted  as  a  matter  of  course;   partly  because  the  eco- 
nomic and  social  consequences  were  not  perceived,  but  m  no 
small  degree  because  moral  standards  were  lax.     In  both  re- 
gards, a  great  change  for  the  bettcT  has  taken  place  m  the 
last  twenty  years.     We  understand  better  what  speculative 
raiiwav  management  entails,  and  we  apply  higher  standards 
to  business  operations  in  general.     The  grc^at  moral  a.lvance 
of  our  day  has  brought  a  higher  sense  of  social  responsibility 
and    solidarity.      Practises    common    not    long    ago   are   not 
tolerated  by  the  present  generation. 

§5.   What  benefits  now  have  come   from  all  this  sullied 

growth?  , 

No  doubt,  rapid  railway  building  has  been  promote.l.  Under 
the  stimulus  of  speculative  construction  and  operation,  the 
American  community  has  got  its  railways  earlier  and  has  got 
more  of  them.  This  the  community  has  universally  desired, 
and  for  this  it  has  been  wmiug  tu  i>a>  ii;in..-'-.n<  a.    -hi  y- 


I 

All 


i^i 


It  I 

V  i 


3^        PKOBLEMS  OF  ECONOMIC  ORGANIZATION 

•  ,      rnv  has  been  dominated  by  an  insensple 
ieal  and  industnal  po  .y^h-  bee  ^^^  ^^^^  ^^ 

desire  for  swift  ^eve^pm^"  ;;;,,,,         ^^^^^^^^^  ^^^  wealth 
resources,  for  the  "^"^^    "^^  ^  ^^^..^er  it  has  all  been  worth 
The  sober  observer  n.ay  ^-^^^      J.^  ,  ..ik  might  have 

,,hUe.     A  slower  ^-^^^^"iJo^  ideal,  such  as  it  was, 
brought  a  better  sociaUtructurc. 

has  been  at^        d.  hastened  not  least 

The  march  of  -P^--^"  ^''^^'fit  has  been  hastened. 

among  the  railways  t^"-*^^;  "  ^..^^  both  by  competition 
paradoxical  as  the  ^^^:^^XZ  oi  railway  competition 
and  by  combu.at.on.  ^"^'^^  ,ffi,iency  in  operation; 

has  keyed  the  managers  to  ^^J  v,een  applied  with 

the  lessons  learned  under  <^^^^  combination.  One  of 
striking  effect  in  the  ^^^^^^^,,^^  has  been  the  con- 
the  causes  of  lowered  co.t  o    tran.  p  ^^  ^^^  ^^^^^ 

solidation  of  the  -^^^^  «    f    Uit!.ted  by  the  ease  with 
tems.     That  proces     has  R  n  ^^  ^^^^  ^^^  ^^^  ,,, 

which  control  of  ^^^'^^'Z\^  which  the  vast  systems 
,tock  »xc.->nge.     The  •^^^P-'^^^^'ono  groat  advance  came  m 
have  been  created  is  ^--^^^^^l^J'J^  ,vstems  -  the  New 
1869-1873,  when  the  --^  -^y^^rta^^imon^  and  Ohio- were 
York  Central,  Pennsylvania  Eric_  Ba       ^^^^^^^  ^^^^^^^^  ^^^^^_ 

formed.  The  depression  of  8  3  1«  .  ^^^  ,,,ii„,,  for  the 
tunity,  iust  when  tH;-^;;:^^^!^,  by  the  arch-manipu- 
ereation  of  the  ^-at  ^ouU  -^^^  ^^^^^^^  ,,„,,  aurmg  and 
lator,  Jay  Gould.    htiU  mxoXU^      u  ^^^^  ._^  ^  ^^^^^,  y,.^,, 

after  the  great  depression  of  XSM  18.    ^  ^^^  jj^^,. 

to  the  Hill  system  in  the  ^.-rOvv^^.     k^^^^  ^_^  ^^^^_  ^^^^^^^ 
man  in  the  Southwest,  tluMorgui  ^^^^^^^^^^ 

combinations  of  whicn  hese  ^  J;' \,,  „,ost  remarkable 
have  vastly  Promoted  railway  effiny.^^^^  .ehievement  not 
achievement  of  the  American  rail^a  ^^^^^  ^^^^^^^^^^.^^^ 

matched  anywhere  in  the  .      d       la.  ^^^^^  ^^^^^^^^^^.^ 

of  long-distance  transporta  u.n ,   ^"^^J^     ,,,,,^^  ,,ithin  the 
affected  the  geographical  'l>v.s.ou  of    .  ^     .^  ^  ^^^^  ^^^^ 

t«.  ....(1  in  the  exchanges  witti  oimi 

;:ri.,>-t::u-..-u.f*«>.u.>.*i..  output. 


RAILWAY   PROBLEMS 


393 


Can  it  be  said  that  the  vast  fortunes  got  together  in  the 
course  of  the  railway  combinations  have  been  earned?  that 
they  have  been  no  burden  on  tlie  community?  The  pessi- 
mistic view  is  that  they  rest  on  mere  stockjobbing,  combined 
with  monopoly ;  on  swindlixg  and  extortion.  The  optimistic 
extreme  is  that  on  the  whole  they  have  been  worth  while ;  the 
community  has  paid  a  high  price,  but  it  has  got  great  benefits 
in  the  way  of  better  transportation. 

The  classification  of  this  sort  of  fortune-getting  in  any  scheme 
of  economi'^  analysis  is  difficult.  In  part,  the  fortunes  repre- 
sent the  shrewd  gathering  of  monopoly  gains  and  unearned 
increments.  In  part  they  are  gamblers'  winnings,  aided  more 
or  less  by  loaded  dice.  In  part  they  are  the  results  of  extraor- 
dinary ability  and  of  the  undaunted  assumption  of  great 
risks.  The  gains  are  partly  predatory,  partly  the  earnings  of 
highly  productive  labor;  they  are  both  legitimate  and  il- 
legitimate. 

Under  a  careful  system  of  public  control,  so  devised  as  to  give 
full    encouragement    to    enterprise    and    investment    and    yet 
prev.-^nt  illegitimate  and  excessive  gains,  it  might  have  been 
possible  to  secure  the   good  without   the  evil.     But  how  to 
f'Mtri"  such  a  system  is  difficult  enough  at  this  late  date,  with 
all  the  experience  that  has  gone  before ;    and  it  is  even  harder 
to  bring  a  good  plan  to  public  acceptance  than  to  construct 
it.     Historically,  the   course  of   development   seems  to   have 
been  controlled  by  a  fated  destiny.     Given  the  impossibility  of 
public  ownership  and  management  (and  for  the  earlier  stages  of 
railway  development  in  this  country  public  operation  was  out 
of  the  question) ;    given  the  eager  d(>sire  of  the  community 
for  ways  of  transportation,  and  its  willingness  to  encourage 
th  ir  construction  in  every  way ;    given  the  looseness  of  cor- 
poration laws,  the  universal  s])eculative  temper,  the  laxness  of 
business  standards  ;   given  the  perio<lic  fluctuations  in  industry, 
the  economic  neculiaritie*  of  railways,  the  opportunities  for 
large-scale  ventures,-    .,  I  the  harvest  was  prepared  for  the 
during  and  able  operator.      Perhaps  .hU  the  advantages  from 


i 


iM 


I  i 


•'i-'  ."■;"'■■"-  ■i  •--:,■*      ■''   •■ 


'''^mmrimm 


I 


394        PROBLEMS  or  ECONOMIC  ORGANIZATION 
„a„a«cnu-nt,  c-uM  hav.  to u  K >         ^avc  docrord  that  tV-y 

„„me  nearly  ...    .      ■  ■!■  ,,,,,  ,„„„,„,|  „,  si„BW,ando.l 

though  no  lons-r  K.    h^  >l  ■ "  ,„.,      ,^,t  rf„„. 

't:  ';r:iv:r;;:::;...n»  "ni.: -  - '--r "; 

Xt.'t-V;;.n,p...rornM.i--<*^ 

™'"T'';     l„r,l  lr,ni-    «  raihvay  always  I'as  a  yirtnal  .r  ^ 

,„,,,.,ly.      I  n„.    Ui.  n        ll»  ,,,„.,„,  „f  railway  tra.is- 

„„„„,i„n,»ayl,y.a„.„,       I  .         '       '^^^.,,„  „„„,  ,„,„„,  „t 

"""."""" ", :;.,t;    » •■  -! «» • '«" ■ "  »'-'"■ " """™' 

„.rru,B...  a,„l  yt    x, .  1  a      J.  _^^^_^    ^  ^^.^.^^  ^^^  „„,„. 

;:;i„:::ji;;;:';.:^;--"- „..„.n,w,n.ay 

„,„„,,.,  „t  ,«,inu  ..n  .1...  r:n  «a    a.     afl  ^_^^^^  ^^^^^ 

...„,1,.      I al  rat,»  imm"t  !..■  I""  llawanlh      i 

:,';;. ., >' v'' ;' ;::;!:r:.ii^^  2^^^^^^^ 

'''-'•":""'■:  ■,-.■"»,.  0 «. ...My  s,».,.»  ..t 

'''■":'"''''''  :^',,«. v., .....!..■  «.-.'-i -'*■"' "'•■"■ 

v,.t.  m  S..111"' 'l>'Kn-«  HKdiv    ,  ..,„,,.  ...fil.lisii.Ml  n.iii- 

'•''  .      u !.,!..    .....nl.inntioM    ''"^O"'^-     •^"    "" 

"""""       '^  "'••■;•;••  „;,.,,,i,„.  ,,:,«,.s  ,-oivtril.uU>  toward  n, - 

fuftc.i-.l-         dm  til"  pii'tnliiii,  1  .m 


M 


RAILWAY   PROBLEMS 


395 


the  severity  of  railroad  competition,  tlic  economies  of  large- 
Bcale    operation,  one-man    power.      Competitive  bidding  for 
traffic  is  superseded  by  consolidation  of  the  rival  lines      Com- 
petitive building  is  superseled  l)y  deliberate  tlivision  of  terri- 
tory.    The  railway  net  is  rapiiUy  settling  down,  -  -  not  indeeil  to 
the  stage  where  no  new  investm(>nt  is  beiii'^  made,  but  to  the 
stage  where  no  new  great  systems  an;  being  formeil,  and  where 
the  traffic  is  apportioned  once  for  all  among  the  existing  systems. 
As  th(>  stage  of  monopoly  is  rea(;licd,  a  railway  is  tempted 
to  charge  what  the  traffic  will  bear  in  the  monopoly  sense,  — 
quite  a  different  sense  from  that  explained  in  the  !)receding 
chapter.     Manag(Hl  as  a  private  or  purely  muiK-y-making  enter- 
prise, it  will  charge  the  general  range  of  rates  which  will  bring 
the  maximum  profit  ;   subject  to  all  those  modifications  of  the 
theoretic  extremes  of  monopoly  prices  to  wiiiith  attention  has 
already  been  called.     On  each  particul.ir  item  or  cla.ss  of  traffic 
it  will  tend  to  charge  what   tiie  coiiditions  of  demand   make 
possible  for  that  particular  kind  of  traffic.     People  constantly 
confuse  the  prineij)le  of  joint  cost  with  tliat  of  monopoly.     To 
charge  what  the  traffic  will  bear  under  the  former  principle  is 
for  the  i)ublic  interest  :    to  cliarge  what  it  will  i)ear  under  the 
latter  is  against   tlie  pui>lic  interest.     So  far  as  monopoly  be- 
comes effect iv<',  railw.iy  rates  call  the  more  for  public  regula- 
tion, even  though  the  problem  of  scitliMg  what  is  si  "reasonable" 
rate  in  any  particular  cas"  must  remain  a  very  knotty  one. 

Public  control  of  rates  is  imiisiMMisuble  umler  any  circum- 
stances, whether  tlie  moiiolioly  power  of  a  railway  l)e  (lualitied 
or  absolute.  When  eoMipetilioii  is  riuaiiy  eliminated,  tiiat 
power  i)ec(»mes  portentous.  If,  indee(l,  it  should  u'  very  greatly 
abused,  it  would  sprcdily  bring  its  own  downfall,  throiiuli  the 
sulistitution  once  U,i  ail  of  public  owiiei-liip  i'or  private.  Hut 
it  may  be  seriously  abiisi'd  without  becominii  inieinluraliie. 
In  the  e.iriier  stage  of  railway  e\i -lieuce  in  the  I'liiled  States, 
qu.stioiis  of  relative  rates  of  discrimination,  of  eoirupt  rat<'s 
and  favoring  shippers,  were  the  most  iiMpoitiiut.  In  the 
existing   stage   of   im})euding   monopoly,    the   question   of   tho 


I  I 


vfl 


1  ;« 

Hi 


miMir^swxi'mml 


ppoULEMS  OF  EC:0N0MIC  ORGANIZATION 
396       PROBLEM.  ^^  ^^^     ^^^ 

,en.al  range  of  rates  ^^2:^^^^^^^^  '''  ''  '\ 
only  the  power  of  the  r.uUva>  ov  r  ^^  ^^^^^      ^^^,^^,        , 

be  curbea,  but  its  ^o^^^^^^  ^  J  ^his  situation  squar.ly. 
persons  of  coaservat.vo  be  t  f  ^   o       ^^^^^^^^^^^^^^^  ^^^^  ^^^^^^ 

They  docnve  tl---^^^^';;n:,,,.>n-i„-,.i...  P^ras-s.     Tl-Y 
front<nn>y  a  .rreat  .ssuo  wiU  c  .  ^^.^^,,„,,,U.;-   and  that 

admit  that  raUway  ^^^  .^  "^^^..uii.ited.     Y.t  th.y  oppose 
■  .aureasouablo"  ratos  ^^^^^,^^^^,  ,f  authority  to  "hx 
vehemently  the  .rant  to  an    PU>1^'      ;^.^^^^^^^  ^^  ,,,,,  of 

rates.     The  differenee  -^:^^^,^  ,,,,  u  the  same  thu.g 
n^ethod.     To  proh.nt  --^'^\^;  ^,y  sin.ply  i>e  more 

as  to  fix  a  reasonable  rate        u  ^^^     ^^^^^^  ^^^^  ^, 

.low  and  ineffective     ^o  dou  M  ^^^^^  ^^^^^^^^^^,,^^  ^.,, 

comm.ssionorcourtisafa-nahnH^  ^^^  ,^^,,^.,  ,, 

the  traditions  of  compete  v        da  J  ^^^^^^^^ ^^^^  ^^^  .  ^^^^^^^y. 

worse,  competU...n  ^^-J  -^;;^;,,,  .f  prices,  by  direct  .. 
«o  far  as  it  has  ceased,  pub  u  r*^  ^^^^   ^^^^^^^^^^^^  .^  ^^  ,,,,,^1. 

indirect  metlu.ds,  is  ""•v'tab-e.  ^^^^  ^^^^j,^^  i,  i^ 

iarly  compl-  one  as  to  ra    v     «  -  ^^^^^^^^  ^  ^^^^^^  ^^^ 

hand  with  great  crcu.n^pe  tion. 

not  grappling  with  it  at  all. 


w^Mmm. 


m 


im^ 


wms^i^^wm^^wi^^^^W'm^^S^^^^M'^  m'r^'M 


m 


m 


I. 


i 


CHAPTER  02 
Public  Ownkksiiip  .wo  Punuc  Contkol 

§1.  How  far  shall  public  rcj^ulatiou  he  ciinitil?  To  the 
point  of  ownership  and  nianaseincut  once  for  all?  These 
questions,  uioot  conspicuously  presentetl  hy  railways,  become 
of  greater  ami  greater  inomeut  in  the  modern  world,  as  large- 
scale  operations  spread  and  monopoly  conditions  impend  more 

and  more. 

No  doubt  there  are  so.im-  things  which   in  the  advanced 
countries  are  by  general  consent   no  loii^!;er  in  private  hands. 
Such   are   highways   and   bridges,   and   elementary   education. 
As  the  sense  of    ilie  widesp.fad  importance  of    some  services 
becomes  stronger,  tiiey  are  conceived  as  no  longer  to  be  dealt 
with  on  the  quir  ,       Qii<>  pnn«'ipl'';    <l»'.v  -i'""'  li'-<>vid<'«'  gratui- 
tously for  every  inaivi<lual,  and  th.'  means  for  providing  them 
are  raised  by  taxation.'     Tliey  are  then  necessarily  supplied 
by  general  lew   uid  under  public  management.     The  (hmbtful 
(piestions   are   as   to   tiiose   services   which   are   still   rendered 
essentially  on  the  uiiid  pro  quo  jirinciple,  as  in  the  case  oi'  the 
post  office  with  its  rates  for  postage,  a  municipal  water  servic(> 
with  its  water  rates,  a  state  railway  with  its  passenger  fares  and 
freight  charges.     These  institutions  may  be  in  privat.-  hand-.; 
and  if  in  public  haii.l-.,  tliey  pr.'sent   problems   very  dilTerent 
fnmi  those  as  to  education  and  ordinary  hi^diwa.^s.     And,  to 
repeat,   the  (|uestion  arises,   which  amoi\g  them  ar.'  properly 
Hulijects  for  puitlic  management? 

The  •loul)tful  industries  are  those  commonly  d.'siifn.iti'd, 
especially  in  tliis  country,  as  "public  service  indu^tru-.,  ' 
8uc»'  as  railways,  the  telephone  and  telegra])!!,  the  sui)i)ly  of 


'<    i 


au7 


iniil'l   iiii.   i   i. 


It 


tu.n-hog,ing  one    un,.ly>ng  a  ^^^^^  ^^^^^,^^^,^^^  ^ha 

,ro  and  thos.  that  ^-.^  f /.'^^"' J^^,,,  j,,!  been  meut.one.l 
,,a  control.  Su..h  ^-^-^^^^^ ^J^^  ^j  u-gal,  and  con.para- 
=*••"  "'^"^'^'•■■'  "^  '""  'Tr'other  is  c-.onomic  and  ,nore  in.por- 

^^-'^-T^'dimi^u/r;^^^^^^^^^^ 

iMiit    but  more  clittnuiv  ui  i 
:;.racteroftheindu.tHes^a..nc^.-        ^^  ^^,^^^,^^,^     , 

A  railway   cannot  be  ^"'^  ^^  .  ^.^,,  to  take  land  at 

acnuirin.  its  right  of  way     ^^^^^^^^^^^^^  ,,.ia   be 

a  valuation,  -  the  r.ght   ^^''^  ^,,  it,  route.     A  gas 

blackmailed  or  blocked  by  ^n    ^^^^^^^    ,,,.  streets,  an  electr.c 

,„„,,ny,  again,  needs  the  r.gh     o  ^        ^^^^^^^^^      ^  ^^^^,,. 

company  similar  rigmso^ec^r.^^^^^.^   ^^^^      „^.,^^, 

ear   company    ''^  ^;j;;^Uden;  on  public  auth^>z.t-n, 
these  are  m  spi-cial  degree      i  j.^.  ^^,^^^0!. 

ln.l  so  subicted  with  --P'^^^^'^.^t-hara  terislic  alone  that 

%U.  it  does  not  follow    rom^^^^^^^^^ 

thev  shouM  be  uumaged  by  the  ^^.^^^,,,^   f.^ 

U   special   degn-e   t.y.u^u.-^^^^^^ 

treating  them  as ''pv.    I    --,,,^,,.^  not  legal;    and  the 

th.-v  call  for  public  control.  .  ^       .^.,^a  to  be  moivop-bcs- 

,.,;,,„.,,.economic^>-     -^^^^ 

If  ..o.npetition  were  ^'^\''''J\       ^^^^.^  that  some  use  of  the 

,,,.,,  and  clothing  ami  '^'>''  '^^Z^^.  ,,„,,ut  to  entail  pubhc 

,,,Uways  was  >— r>;.  -^  j    ^    t   at  the  streets  are  used 

...nlation;    any  n.-re  than  tla      ^  ^^^^^^   ^^^^^^^^^^ 

,,v  .,d.s  and  onuubus...    ha^k  ^^^^^^      ^^^^  ^j^,.  ^,„,,r 

»KU.d.  even  though  there  be  no    -^^^^ 

,,,  ^rant  of  >pecial  p-wers  or  f^,U-|l..dge.l  nxmopoly 

control,  any  industry  wh.ch    eu  1  <  ^^^^^^^  ^^^^_  ^,^,^,,,„y 

.,,„.  ..alls  for  regulatmn  and  .ugg.^b^  ^^^  ^^^^^^^  _^^^^,^.,,^  ^,,,, 

.,.       ,,,i,  ownerslnp.     H  ">'^"  ;;.,„;,,..  should  soon  hear  n 
i,,!..  handsof  at.thl.uml.nat.ou, 


PUBLIC  OWNERSHIP  AND  PUBLIC  CONTROL     399 


dubbed  a  public  service  industry.  It  is  a  public  service  indus- 
try in  the  s<-nse  of  being  of  vast  importance  for  all  the  public. 
But  it  does  not  call  for  regulation  so  long  as  competition  is 
Mifficiently  effective  in  it.  Water  supply  is  a  public  industry  in 
every  sense:  legislative  authorization  is  indispensable,  the 
industry  is  supremely  important,  it  has  monopoly  character. 

Th' ugh  the  extent  to  which  combination  to  monopoly  will 
proceed  among  Tnodern  industries  is  uncertain,  it  is  clear  that 
it  will  extend  far.     That  the  iiidustri.'s  now  commonly  called 
"iniblic  utilities"  belong  in  <hf'  monopoly  class,  was  not  at 
first  seen  in  the  I'niteci  States.     Competition  was  invoked   in 
the  early  days  as  the  means  of  regulating  their  ciiarges.     Rival 
railways,  rival  street  railways  and  gas  companies  were  wel- 
comed, and  the  beli.f  was  entertained  that  her(>,  as  in  other 
industries,  competition  would  suffice  to  make  charges  reason- 
able.    How  many  American  cities  have  had  competing  street 
railways  and  gas  companies   and  telephone  compani(  s,   with 
promises  of  lower  charges  and  bettcT  service  ;  and  how  infallibly 
have  the  competitors  in  the  end  got  tog(>ther  in  a  tight  combina- 
tion!     Notwithstan.Iing  re]).  ..ted   experience   of  this  sort,   an 
illusory  hope  is  still  cherished  in  many  .'asrs  as  to  th<-  efficacy 
of  competition.     The  simple  and  obvious  lact  is  that  monopoly 
inevitably  ensu(-s.     Th.-  need  of  regulation  in  some  other  way 
thaii  through  c()mi>etitioti  nuist  1>(>  faced  once  for  all. 

The  cause  of  monoi.nly  in  many  of  these  cases  (thoup;!.  not  in 
all)  is  stricMy  cconomi.'  :  namely,  tliat  the  industries  are  con- 
.hictcd  und.T  the  con.hlious  of  increasing  returns.  So  witli 
the  railway;  though  probal  ly  the  rat.>  of  inrrease  diminishes  ,s 
th.'  railway  system  .■nlarg.'s.  Wlien  ih.wr  supersed.'.l  animals 
in  street-raihvi.y  traction,  the  same  iMM-anie  true  of  this  m- 
diistiv.  Klc'.lric  liuht  and  powrr,  gas  and  water,  all  are 
more'chrai.lv  supi.lie.l  if  one  unifn-d  plant  serves  a  single  larue 
area.  In  su.h  ca>es  the  words  proph.ticaily  u^..!  by  .lolm 
Stuait  Mill,  in  the  early  day-  of  the  pr.s.-nt  in.lustrial  n'-gine, 
are  as  true  as  tliey  were  sixty  years  ag.. :  '^'Wh.'.i  a  bu-ine^s  of 
real  publ-c  importautr  tan  oiuy  be  rarriid  on   i-.ivantag''ijus.y 


I 


!  <  a 


Jifes^^rr-gK 


^        PROBLEMS  OF  ECONOMIC  OUC.N.ZAT.ON 

4„  render  the  liberty  ol  oompctition 
upon  s„  krBC  a  scale  a»  to  «nder    ^  ^^^  __,  „,^,  p„,,ii„ 

resourevs  that  several  <■■» "^  -';       ,„,,  „,„„„>imty  tlm  one 

kept  up  tor  the  l-'l"- "' ^    '-     H  at  o„ee  us  a  pul.lic  tu..c- 
servieo.     It  is  mueh  Letter  to  "■' '  ,.„  „„„,,!  I.ene6- 

U„„;   and  if  it  1..;  ".;t  7*:,,S,  :r    ,.!»■  to  the  c„...pany 

'"^:;:,s,„ineeaaa.heteM,.»,e...M.^^^ 

„„,„.,„!  u,>,ler  o,o,„,.„ly  •■<>»■  ■■;;"'„';:^,'  ,„    the    puhlic 
„re  ,liffere,tt.     They  -  ;>;      ,  ,  ,,  eoneeivable  that 

;,  ,„.e,„hra™,B  -«"  '^^J^ly  one  set  of  companies  in 
letter  serv.ee  shoul.l  '«■  '  "'  '  „,„  „,„„„y.  The  rates 
the  cities.  an.l  hy   another  s  t  m  ^^^^_    ^,.^,^.,„^^ 

conM  he,  atta  pr..i.a.  y -;■;;;,, „,^.,,,„,^^^^^ 

if  thes,.  «vere  '''l""'' '■/'"■''"' ,•,;,,,„„„  high  protits  i,l  the 

«"■■<'-  '.">■  '•"■''■';\:;;\  ':;;::      \     ion'    as  l  t,.  e<,ni.a0.e 
eities,  is  m  a>-™nl  «ith     nrnn  ^^^^  ,.„„rmoua  conven- 

relati..n  hettveen  cost  an.l  1'"";  .^respondent  once 

tor  all,  at  a  snnph'  h»,l  .,*,  >M      f  ,  ,„urse,  tnust 

,  Mill,  Pnnrl,!.^  of  '^''^'''^'f ''''"Y;^^;;;^'/,'!;;;'';'!!,^ J-.-wllinR.  «^rtin«. 
.Th-  .MHM-  "f   ""■  ';-'  """■.",',;•„.  ,iv..u,l.^.rif..     M'T-  .nu,H,.or  «- 

^i:  ..'1  ..,„.„.:.rMiv,i>  liMif.  '':;;'•■;•;;  ::^'^^,   .„.,...  -n.w  w... «......« 

,  ,.  -It..   -  '-  tm.  ..f  -•;•;-'""'-     ,;,,(..-  l.i.  .r,.,.t  r..(..rm  (p.-...y 

1  ,...Ht  .tf  trat>.l...rt:«...M -;-"  ''^  ';"'['..';;  ..^u.-lltttu-m.  "...t"r,     Vmforn.  ty 

trirtt..  .1.1.  I..  juHtlfl'tl  '  1  1- ">  '""   '^ 


PUBLIC  OWNER>;iIIP   A\D   PUBLIC   CONTROL     401 

most  conspicuous  of  all.  The  essence  of  effective  telephone 
service  is  to  be  able  to  talk  to  any  and  every  subscriber.  Com- 
peting telephones,  each  having  its  own  set  of  subscribers,  are 
the  height  of  absurdity.  The  (^liuiination  of  competition  is 
here  not  only  inevital)le,  but  umjui  stional)ly  beneficial.  The 
only  possible  question  's  whether  there  shall  l)e  public  mo- 
nopoly, or  private  monopoly  ret^ulated  by  pul)lic  authority. 

§  2.  In  virtually  all  of  these  cases,  pul)lic  ownership,  where  it 
has  been  adopted,  has  been  preci'ded  by  private;  and  this  for 
the  reason  that  the  spur  of  profit  is  necessary  for  the  initiation 
of  advances  in  the  arts. 

We  are  here  on  disputed  ground:   how   far  do  the  .selfish 
motives  predominate,  and  how  far  inu>t  they  be  appealed  to  for 
the    furtherance  of    material    progress?     Men    are   e.\traor'li- 
narily  unequal,  and  not  lea-st  une(iual  in  the  degree  to  which 
they   respond   to  altruistic   imi)ulses.     .\tnong  men  of  genius 
—  great    painters,    ixx'ts,    nuisicians,    men    of    science  —  the 
coarser  motives  are  often  veiled  or  ov(rlH)rne.     .Vmong  them, 
the  inborn  instinct  is  strong;   they  work  not  primarily  for  re- 
wanl,  but  becaus(>  the  bent  is  irresistibl.'.     So  it  is  to  a  large 
extent  witli  inventors.     But  these  are  highly  exceptional  per- 
sons.    For  the  vast  majority  of  men.  the  argument  from  the 
bribe  holds.     The  prosi)ect  of  gain  is  iiumeiiscly  powerful  in 
bringing  men  to  exercise  their  facullir-;  to  the  utmost   pitih. 
.'his  is  the  case  in  no  small  degrei-  even  with  tho-;(>  of  higliest 
genius.     It  is  more  markedly  the  case  as  we  descend  from  tins 
very  small  set  to  the  much  largir  class  of  al>le,  though  not  liril- 
liant,  men.     For  all  excej)!  the  very  few  of  extraordinary  gifts, 
the   spur  of    gain    is   not    only    powerful,   it    is   indispcnsaliie- 
Almost  all  inv<'iitor^  and  mrti  of  science  are  sui)ject  to  the  mH- 
regarding  motives  which  affect  so  i)rofouiiiily  the  life  about  them. 
They  work  the  more  .streuuou-ly  and  effectively  in  proportion 
to  the  expected  reward.     This  is  the  prii\ciple  underiylMg  (h«' 
whole  system  of  patents,  .'opyri-ilit^,  and  trade-mark^,  nay,  the 
v.-holf  Hvst!'!!!  of  competitive  iiidustrv  .ind  private  property. 
Furlhr-r,  for  the  i)rogress  of  industry,  tiiere  must  In-  not  only 

vol..  II        -  l> 


ii 


Mil 


<  .11 


si  1 


I    ' 


40.        PROBLEMS  OF  ECONOMIC  ORGANIZATION 

„la;«l  an  «*n„al  pari      W     a^  ^_^^,  ._^j,_ 

vUUml.     In  fact,  tlaT.  ha.  IH  ^^^^^^  ^^^^^^  ^,^^^,^^ 

"'->-;'"™''f '';■'''>:,:;;::.  J  :  ot  U.0  finally  suco,».ul 
.feappointmi!  lr.al»,  *"'  "^Xxiik  inv.ntio.w  of  the  m.lus- 
■U-vice.  The  steam  "'j'-;;';  f  ,.,,,i„„,  „,i„g  n.aeh.ne., 
trial  revolution,  the  rall«a^,  '  "  ™  ^o  seleet  a.nonR 

all  went  through  '^"^ ''^^^^^^'^  „„„  inve»tn,en,., 
the  nval  .ehe.ne..  a».l  to  ""';;;  ';/.„,,„,„,  So.ne.in.e., 
the  bn«..es.,  man  .s  as  neeess..r,v  as  tn<-  ^^^ 

a,  i„  th,.  ease  of  >''-'"-:;;';;:;;:!!l^::r 'typiealease  of 

,  also  a  '-;■;-  ;'-„,„^;:^  „,  aUmy  nmst  l,e .Im-.l 

i::;:";:;:!',:;  tl.  Lvenfor  ,..,.  t,.  ..eUn,  a,n,  .unlanee 

of  the  nianagini!  ealiilahst.  |^.^^.,,  ,,„,„ 

The  history  of  the  past  sho»s  the        r  o  I  ^^^^^.^^ 

a,  work,  an.1  a,>pa. tb"  ""  »""r     Jivl      anasement  has 

"'"—-:;■:;:; ;::  s ^Ja  :n:nt  h.  eon.^ 

i.Hloea    an  imlustry  has   boon  ^^^^'^^ '       J^,^  ,,,.  ,,uh„at  the 
i,  one  country,  it  n.ay  be  transplant  d  t-    "tu-  ^^^ 

„,,,„,„,y  .tu,e.  When  t  e  r^^^  1  Uin,  onler  in 
!.„erinien.,  iuul  been  brou.h  '"  ?  f  V'ontuu.nt  a,s  a  state 
Mana,itwas,asyton.vo.l>u..-^ 

i„,ustry.'     A  ^^eneratmn  hUer,  .t  ^^'^     ^  •  ,„.  i„,. 

,,,,„,.s  to  untleriake  pubhe  --'^''",',;^:^„,    .    private 
portinR  fro.u   Iln^land  men  trauuul  u.  tht 

,  Mo.,  rulw„v.  on  .tu.  '^"•"'-"[..JX;;;;.'.::.,,, ..^  .stially  u.KltHakt.. 

t     «i.    I'tiiti'il  Sliit'"^,  tilt  r.iii""j  »«<■ 
^jlilllOll'*.      I"  *»'    ^  "'"    ' 

by  priviito  ciitirpri.sc 


PUBLIC  OWNERSHIP  AND  PUBLIC  CONTROL      403 

management.  Electric  traction  for  urban  transportation  was 
easil}  started  in  England  as  a  public  business,  after  private 
enterprise  in  the  United  States  had  shown  how  the  thing  could 
be  done. 

The  probabilities  are  that  the  same  course  will  be  followed 
in  the  future.  The  present  state  of  water-power  transmission 
through  electricity  supplies  an  instructive  illustration.  Here 
are  great  possibilities,  nay,  great  certainties.  The  simple  matter 
of  building  dams  and  impounding  the  water  can  indeed  be  done 
by  the  state.  But  the  hydraulic  and  electric  plant,  and  the 
transmission  and  distriliution  of  the  ])ow('r,  involve  risks  and 
call  for  enterprise  and  vigor  (not  to  mention  technical  progress) 
such  as  pul)lic  officials  are  not  likely  to  supply.  The  utiliza- 
tion of  water  power  through  electricity  thus  waits  on  private 
initiative  and  management.  Obviously,  a  monopoly  situation 
exists,  or  at  all  events  imj)ends  ;  there  is  just  so  much  power, 
and  he  who  controls  it  controls  all  the  industrial  possibilities. 
The  public  sliould  never  give  away  in  perpetuity  the  ownership 
of  this  great  resource.  Yet  it  can  probal)ly  secure  itsetfective 
development  only  l)y  allowing  scope  for  private  profit.  Only 
at  a  later  stage,  when  the  best  ways  of  utilizing  the  power  have 
come  to  be  understootl,  may  public  management  take  the  place 
of  private. 

§  3,  When  the  transition  from  private  ownership  and  manage- 
ment takes  place,  the  question  of  vested  rights  will  always  arise. 
The  terms  of  purchase  nuist  not  be  such  as  to  deter  future  invest- 
ment in  other  enterprises.  But,  on  the  other  hand,  only  so 
much  should  be  paid  as  is  necessary  to  keep  alive  the  spirit 
of  private  management  and  investment.  Tlu'  i)ribe  should  not 
be  larger  than  suffices.  Naturally,  the  recijMent  tries  to  get 
more,  —  unlimited  franchise  at  the  start,  and  at  the  later  stage 
purchase  at  the  top  price.  The  financial  markets  will  capitalize 
his  earnings,  whatever  their  range,  and  he  will  expect  purchase 
at  the  ca|)italized  value. 

It  is  the  first  and  simplest  canon  of  public  policy  in  these 
matters  that  there  should  hv  no  unlimited  tranchises.     Whether 


IS 


Hi 

(I 


■(' 


r. 


i  i  ' 


II  n 


i 


404        PROBLCMS  OF  ECONOMIC  ORGANIZATION 

telephones  or  water  power,  tne     b  authorization 

the  industry  in  private  hands  and  the  no  ^^^^^^^  ^^^^ 

too,ar«ervc,llimilB<  o   p  ^^  g^p^. 

:r  t" ::,    :n„;;^:,  ««..  .ha.  a  .;.,..  or  ..urcha..  »„  .ea^on. 

i,.,e  .„„.  .U,o»  no.  *U.  pnvM^  -— ^  ^^^^  ^^^  „,. 
,„  ,Ws  r,.»po.-..  °>"^  f     :  ■';„  „,.„  birthright  tor  a  «.„g, 

|„»  .,t  pirf<Tity-  .T'"'V"",;"  ^,„.  exnlanation  b  obvious 
or  have  simply  R>von  i<  f''^-  ■.  ,|,;,„ain  ohjofts  of  .ho 
™„ugl..  In  .ho  Pionoor  -'«- ™;:^  ^^^  ,„„  ,„/.„i„g»  .hat 
.,„ly  »..lcr.  is  .o  P»-;'  ^  '^;  1^  ,„,,  ,,»„  »i.os,  .nines, 
„H1  Looon...  valuahU-  "  ;'   J"^  ',,     j,.„  „„,   o.on  .hinks  ot 

--'^•'■'^.r.;T::tr::;::io;:s;'"-"»^"-"- 
:;;-ti;i:"::'=^^^^^ 

tion  of  .he  possiUiWios  of  .ho  tu.uro  ^^ 

When  .1.0  .nislako  has  '»         ■;';.^.^,;";„  J^ip,  .„a  ,vho,e 

industry  to  got  in.o  unros  r,  to,l  1""  ■";'„„  ^^,,  ,,^,u 

it  has  hoons.,1.1  an.l  hough.  '^^ ;^;;;7,7      .^.r.ransi.ion  to 

of  such  ownorship,  thoro  ,s  u.,  lung  to      .  ■ 

,„.„„o  ownorship  is  -^'■""""l'':;J^;!^l,.,  .hon  he 

on'  »'  «" ;';'-'■;  ;•;•":■  2T.Z^ul>  or  repro,luoti„n, 

fixed,  n...  on  the  ha»i>  "1  '">'  o  ...„i„„,.     The  rase 

„„t  on  .ha.  of  .1,0  -M'"^  •"■'';■"  "',         ,7  1  0  o„mn,uni.y 

i'  .1-  - ^  »'"■    "'■;:;;;:      0  on      e  ,«  of  a  por. 

,„„  „.noli,m,.,l  ""■■"■'■"'•"',:";■  „  ,,„,  „,„horiml  ...hers 
,,.,ual  franehiso.  ,.  uu,..  itself  !»> .  as  .  h.>  ^^_^_ 

'"  ■'"•  ""  ""■  ""*  """T:    'f  :;..ri     .  -"    a  nings  of  .he 

'""■ ";":",:;  ir: ';  lan: :« ".ppropria.e  .hrou,h 

monopoly  oi   piivuiy  ,    t^ 


(    fl 


I  .  1 


PUBLIC  OWNERSHIP  AND   PUBLIC  CONTROL     405 

taxation  the  future  increase  in  the  value  of  urban  sites.  Unless 
all  private  property  is  wiped  away  once  for  all,  the  lawful  owners 
of  this  particular  kind  of  property  cannot  be  singled  out  for 
special  tlispossession.  Hence,  for  example,  when  Pruosl.i  in 
1878  resolved  on  the  epoch-making  step  of  buying  the  railways 
for  the  state,  purchase  proceeded  frankly  and  even  liberally 
on  the  basis  of  the  market  value  of  the  roail.v.  (jreat  Britain 
will  do  the  same  when  she  buys  her  railways,  as  she  may  be- 
fore very  long.  The  United  States  will  have  to  ilo  the  same, 
if  the  time  slmuld  come  for  that  far-reaching  change.  France 
is  in  a  comparativily  favorat)le  position  for  the  possibilities  of 
the  future;  since,  under  the  terms  of  the  original  legislation, 
her  railways  are  to  pass  into  the  state's  hands  by  the  middle 
of  the  twentieth  century  (19.J0),  without  any  compensation 
at  all  for  the  permanent  plant. 

§  l.  The  preceding  discussion  has  proceeded  as  if  the  transi- 
tion from  private  ownership  to  public  w(Te  certain  to  come  in 
the  case  of  all  the  monopoly  industries,  and  as  if  it  were  depend- 
ent solely  on  (he  attaimuent  of  a  si'ttle(l  stage  of  technical 
and  industrial  development.  But  the  matter  is  not  so  simple. 
Public  ownership  may  not  come  at  all ;  (jr  it  may  be  preceded 
by  a  long  period  of  private  ownership  under  pul)lic  regulation. 
The  conditions  on  which  the  choice  of  policy  nmst  depend  are 
here  not  economic  in  the  narrower  sense  ;  they  are  mainly  social 
and  political. 

There  have  been,  it  is  true,  attempts  to  formulate  certain 
economic  characteristics  by  which  the  line  between  public  and 
private  industry  can  be  drawn.  A  well-known  older  attempt 
was  that  of  Jevons,  who  stated  the  earmarks  of  an  industry 
adapted  for  pu!)lic  management  to  he  the  following:  (1)  small 
capital  account  ;  (2)  routine  operations ;  {:>,)  the  coordination 
of  several  services,  as  the  i)ost,  th(>  telegraph,  ami  the  telephone  ; 
(4)  the  sufficiency  of  a  single  all-embracing  plant,  a>  in  the  case 
of  water  and  gas  supply.  This  enumeration,  made  at  the  time 
when  the  transfor  <-.r  tlu>  telegra])h  to  the  state  was  under  <'is- 
cussion  in  England,  has  obviously  failed  to  til  later  exigencies. 


li 


\U 


omm, 


.r. 


m:< 


406        PROBLEMS  OF  ECONOMIC  ORGANIZATION 

is  not  met  in  the  case  ol  the  railway ,  y  ^.„„„,„ation 

management  on  a  great  sea  e      Mn    th»  e^^  ^^  ^^^  ^^^.^.^^^ 

Still  deserves  attention ;   for  it  point,.,  lu 

„^rT£.e.p;a.«.>e;.y«^...r^^ 
canital    aceount.     Uhere     he   eaiat.  ^  ^^^^^^ 

financial  and  teehnieal  outeome  of  •"-'■■';    „,„„,,i,nre, 
to  judge.     The  management  may  ^ ^^l  m  the  year'« 

to  be  made  by  a  poor  "»-  ^  ..^^^J^^L,,,,.,  „r  largo 
looked  into  the  aeeoun  .  .,t  a  -"l"; ;  ;;.  .  .^  .,  ,„  „„,,,, e 
manofaetorlng  eoneern  ^-^  "  ,  '  ^  l  eapi.al  aeeoun,. 
,l,e  figures,  and,  above  a  1,  th.    sta  ,j,^ 

„„ore  iudging  "lu..h™  .^e  uu.a^  •  ■      _^  ^^^^^^^  ^^,^^  .^. 

supervise  publie  »««■'■■'■'.;"'.„'";,    „„,,  ,,,r„.ul,  as  plant 
istration  has  been  elhe,en.l.-.om.t       ,^  ^^^^^_^^^^  ^^ 

i.  larger  and  more  e,.,n    ev     ^  '  ^^^^^^^  ^^^  ^,^„,i„ 

"">•■"-"  r         '"."o  e  av  '  s     "    urr„s,ing  sueh  busin.-ss  to 
oiru-ials,  the  more  is  oii«   aN'f.' 

their  hands. 

Something  of  the  same  -rl  h-.l- 
the  operations.      tni>   •■ 
^uln.inistration  ean  be  .-...iueed  to 
^vhether  these  have  luv,<  toU-vved. 
sometimes  said  (as  it  wa~  h^   .ievon 
]\lAy  to  be  well  eonchi 
constantly  under  eve 


"Ui--. 


,i   !<v  thi 

..  ^      'Vt 


,  v,,uti!'..-  character  of 
asier.     Wlu-re 
i^     ;isily  seen 
■  mi     (H-on  it  IS 
,1    ,t-A-  is  more 
.J     -    «>  tip"  :tlion<  are 
I   ,^^     -ft-    fn'fiils  all 


such  requirements;    nui* 
criterion.     If  wt'  -^tart  v 


;:h    Tie 


^r<.  to  be  niistni-ti'd, 
we  end  with  l.imtation- 
sugKPsted. 


-n  stiiie 


^....^^  -uirp'sted  the 

■j::,-     T-.lblir    officials 

:M:nv   un(!  r  watch, 


its?"       jvU: 


i   i 


w 


PUBLIC  OWNERSHIP  AND  PUBLIC  CONTROL     407 

Now  the  question  whether  public  officials  need  to  be  con- 
stantly watched  depends  on  their  character  and  quality ;  and 
this,  again,  in  a  democracy  depends  ultiinatel\  on  the  character 
and  quality  of  tlie  electorate  or  other  body  tliat  chooses  tliem. 
If  we  are  sure  of  tlie  prol)ity  and  ability  oi  t  h'  officials,  we  may 
turn  over  to  them  for  manaKiMueut  a  v(  ry  wide  range  of  iuchis- 
trial  operations.  We  need  not  hesitate  l)ecauM>  the  capital 
account  is  large,  or  becaus(>  the  operations  are  irregular  and 
complex,  or  are  concealed  from  the  public  eye.  We  may 
intrust  to  them  the  management  of  ail  the  monopoly  industries 
which  have  passed  the  formative  ;:ud  experimental  stage,  and 
in  which  the  tedmical  comlitions  have  become  fairly  settled. 

To  sum  up  :  the  strictly  economic  earmarks  for  state-managed 
industries  are  maturity  and  monop(ily.  But  the  state  means 
state  officials  ;  and  whether  these  are  competent  to  take  charge 
is  a  troublesome  political  anil  social  prol)lem. 

§  5.  Two  things  are  necessary  for  the  serun>ment  of  an 
efficient  body  of  public  servants:  first,  \sell-ilevised  political 
institutions;  and  second, —  above  all  in  a  democracy,  —  a 
sufficiently  high  level  oi  intelligeuce  and  character  in  the  great 
mass  of  the  community. 

Not   a   little  depends  on  tradition  and   hal)it.     The  spoils 
system  is  largely  a  l)a<l  habit.     Until  it  is  rooted  out,  good 
public    management    is   hopeh^s-.     The   bureaucracy    of   Ger- 
many has  the  support  of  ancient  traditions,  bound  uj)  with 
devotion  to  the  monarchical  ideal.     It  has  proved  an  invaliiat)!e 
instrument  for  th(>  succ(-ssful  extension  of  state  activity.     Our 
American  principle  of  checks  and  balances,  of  limit <'d  i)o\vers 
and    divided    responsibilities,    wm-ks    against    efficient    public 
management.     Our  principle  has  been  inherited  from  the  tlays 
when  the  would-be  absolutist  was  at  the  head  of  the  state, 
and  when  state  officials  were  suspected  of  attacks  on  lil)erty. 
We  are  slowly  coming  to  recognize  that  the  state  is  a  great 
agent  for  social  uplift,  and  that  its  officials  net-d  more  freedom  ..f 
„„.:.,.,  i.-.o  (,.*if.r=  n"  •wtimi      In  municinal  irovernment,  where 
the  .situation  is  worst,  the  goal  of  reformers   is   the   elunma- 


I    1 
I. 


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.- » 


408        PROBLEMS  OF  ECONOMIC  ORGANIZATION 

tion  of  the  wheels  within  wheels,  n.neentration  of  responsibility 
aiminution  ot  the  number  of  eleetive  officers  and  lengthenmg 
of  their  tern.s,  permanent  tenure  for  the  routmc  staff  and  fo 
the  trained  experts.     In  all  these  respeets,  hah.t.  of  though 
are  slowly  ehanging,  and  tlu>  way  is  being  prepared  for  at  h>ast 
the  possibilities  of  l)etter  things. 

The  employment  of  publie  laborers  in  a  demoeraey  is  ahyays 
a  thorny  problem.     They  strive  to  becon.e  a  favored  class, 
with  extra  pay  and  extra  privileges.     As  ha.  .Uready  been 
said,*  other  laborers  are  apt  to  support  them  xn  such  endeavors 
from  a  confv.sed  notion  that  the  process  will  raise  vvages  and 
privileges  generally.     Elected  officials,  on  the  other  hand    are 
apt  to  accede  to  their  dema.uls;    for  this  compact  bo.ly  o 
voters  needs  to  be  conciliated.     At  its  worst,  the  en.ployment 
of  larse  bodies  of  laborers  means  a  political  machme  am    po- 
litical .orrupt  ion.     Even  at  its  best,  it  is  likely  to  brn.g  place- 
making  and  easy  stints;  hence,  inefficiency  and  expense. 

Private  imlustry  has  a  ,,uasi-automat,c  check  to  t  ns  evil. 
Th.-  n.anager  looks  to  nioney-n.aking,  and  will  pay  to  labor  no 
nK,re  than  he  can  g.-t    it    f<.r ;    that  is,  m.  nmre   than  other 
hvhor  secures.     The  public  official,  o,»  the  other  han.l,  is  not 
n,or.,uslv  suluect  to  the  test  of  profits ;    he  can  d.p  mo  the 
apparcnilv   botto.-.less  public   nurse.     The  state  sho..  d  be  a 
,;,,l..l  H.lployer,  and  should  set   an  exa.n,.le  of  good  waRes. 
,uoa..rat.-   lunns.   steady   empluy.n.nt.   luuna,.'   surnnmdmgs. 
n„t  the  sl:M,.  should  also  set  a.i  example  of  r.M,uiruig  for  is 
full  dav's  ,.av  a  lull  .lay's  work.     The  ideal  of  too  many  people 
is  that"  it  ^hould  b..  generous  with  the  pay.  but  rasy-gomg  with 
U,..  work,     There  is  a  world  of  si«ni(icanc..  in  the  Australian 
phrase,-    "th..   ^overn.nent   stroke,"     A   publ.e   offioal   n»   a 
;i,„„ocracy   always  finds  it   difficult    to  exen.ise  the  power  of 
.lisehnrwe,  abov.-  all  to  prevent   .onduct  that  is  sunply  slack 

mid  dilatory.  ..„. 

-,.,,..  ,„,i„,,,„„,,,.  of   pr-Kress    in    the  arts   .s   another  diffi- 
cult matter  uu.l-r  publi<-  management.     Iv.iuiuul  luatunty  is 

'  S.V  Kiii'k  V,  Cliui.ir  17,  i  1. 


PUBLIC  OWXERSHIP  AND  PUBLIC  CONTROL    409 

never  reached  completely ;  further  advance  is  always  possible. 
There  is  indeed  a  wide  difference  between  the  early  ^tago  of  un- 
certainty and  experiment,  and  the  later  stage  of  gradual  improve- 
ment on  established  lines.  The  railway,  for  example,  is  still 
being  made  more  eflicient ;  Imt  the  great  lines  of  technical  and 
economic  procedure  seem  to  have  been  definitively  marked  out. 
Though  the  application  of  electricity  to  traction  may  bring 
great  changes  in  railway  transportation,  there  will  be  none  so 
revolutionary  as  thost'  in  the  early  period  of  invention  and  de- 
velopment. Nevertheless,  in  railways  as  in  other  industries, 
even  when  they  have  reached  a  comparatively  settled  stage, 
public  management,  to  l)c  fully  satisfactory,  should  not  be 
content  with  doing  passably  well  what  the  world  has  already 
learned  to  do.  The  continued  progress  which  it  should  main- 
tain calls  for  keenness,  vij^or,  enthusiasm,  single-minded  devo- 
tion to  professional  tasks  on  the  j  "-t  of  trained  adniinistrators 
and  experts.  Only  an  inte!!i;^('nt  and  self-restrained  democracy, 
or  a  very  capable  autocracy,  can  eidist  such  men  and  get  them 
to  do  their  work  in  th(>  l)est  spirit.  TIic  (ierman  llinpire  .;nd 
the  Cierman  states,  in  their  i)ost  office,  telegraph  and  teh-phone, 
perhap.s  in  their  railways,  unmistakably  in  their  military 
organization,  have  maintained  a  high  spirit  of  amiiition  and 
emulation.  But  the  Australian  colonies  seem  to  have  secured 
simply  humdrum  management  ;  honest,  to  be  sure  (and  for 
this  much  we  in  the  Tniteil  States,  to  our  siiame,  must  pay 
«»ur  tribute  of  respect),  but  devoid  of  life  and  vigor.  No 
democratic  community,  with  the  possibli'  exception  of  Switzer- 
laml,  has  slutwn  in  its  piiidic  industry  a  spirit  of  progress  com- 
paral)le  to  that  of  piiv.ite  industry. 

§  t>.  in  the  end,  a'l  these  matters  of  organization  and  effi- 
ciency go  baciv  in  a  demoeracy  to  the  most  fundanienlal  of  the 
requisites  for  successful  pul'Iie  nian.igenient,  the  >ral  and 
intellectual  quality  of  tiie  corniniinity.  Tliere  nnist  \n  in  the 
eonununity  a  good  average  of  character  and  conduct,  in  ordi-r 
to  secure  evei\  honesty  anil  faithfulness;  there  must  lie,  in 
addition,  a  gootl  aver.ige  ol   luteiiigence  and  sell -restraint,   in 


r'  ti 


^'1 


iU 


Ik 


,.0        PKOB.B^.S  0.  ECONOMIC  OKGA..Z,«>ON 

.        ,     u- of  trained  and  progressive  ex- 

n^^^rrCdt:::"^^---^-^^^"^^' 

it  is  very  hard  to  secure  the  second  ^^^^  ^^  ^^^  ^^^ 

We  in  the  Tuited  States  »'       J^'^;^,-,^,,,,!  political  inst. 

.,on  hon..ty  uud  Ca.thful  ro  U  u  \^^^^^,^^^,,,,,,,  ..pou- 

tutions,  exee>s  ol"  ele.-ted  ^^^^^^^^^  ,,,i  i.nprovement  u. 

nihility, -all  tlH.e  -1:^7  ^^tv  promises  a  good  deal. 
,,,.0  matters  of  ,v.1ku.v  nu^  ^  ^^^  ^^^^^  ^,  ,,,  p,o. 
Rut  at  botton.  we  have    o  d    ku  ^^^  ^^^^^^^  ^^^^^j^^  , 

A  ,ood  electorate  w  1  ehoo^  lu  m  ^    ^^^^^^^^^^  ^^,  ,,^ 
debased  or  indifferent  one  -  »        ;  ^^^^    administrati<.n    and 

'H-''    ^^-^'^^'"-^   .?T  Uha-  <      uten  held  aeeonntable  fc,r 
sputtered  respons.i..l.ty  has  ^^^^^  j^^^^^^.,.     No 

,,.  evils  of  nnuueipd  ^-nm.  ^  ^  ^^' ^^,,.,,  ,,,t  a  very 
aoubt  it  has  had  >  1  ^^^^■J'l^^  ,,,  .,.,,a  in  the  way  of 
siu.ilar  systen.  u.  (-n-at  Uu  .  <       ^     ^^^^^^^^^^  .^^  ^^^^_  ^^^^^,,,,^^.^y 

bone-t  and  ctVwi.nt  ^'l"^'"'^^.  "        .    ,.,,j^,  ,,,i,ss  the  right  per- 

:i:'r;:i;:r :;:;:-  ---^-  --^ ''- "'"'"' 

;!;;.isite  there  is  -  ^^'^^    ,,,,  ;,  ,,r  nnmicipal  and  state 

I,  is  often  saul  '»'=^'"   ;'\^.,^,,,,,>ip  of  the  great  monopoly 

,,airsiscaus..dbypr>v:d      --^^^^  T^,.  reason 

,,„,,,i<.s,  ,„d  that  ,>ublu  o.n  ,^,^^^^  ^^,.,.^^^i,,  j,  ,„. 

«oistonnstaU..tl ;;-';,  1  enten>nses  ean  yi.-M  ^ 

„reat  fund  of  ^.:un  .vlu.h  »'"   "     J     '    ,,^^^,,,,,  i„tle  wlu'ther 
L  eau..  is  political  aemorah.at  on      It    ^^^^^^^_^^^__^^^ 

tl-  -i.i^.t,ve  u,  cornM>i   -y.    >    .      ^^^^  •  ^^^.  ,.  ^^^^ 

r--'l-'>    ••'•'•'''^'r  '"     L     m'l.     ,„  either  ease  it  is  the 

exi^ten .!•    vMnl   ''■-'^'•'"*  .„,,.,  ,,,.,  ,„;,nagc,nrnt  ..1  th- 

cou^c  and  '•'-•:-'   ;;;,;;:ro;;;.ablc  n>..n  ..thdraw  from 
'>'''''•'•  ^''■^''^n.rM>lacMl^v  those  les.s.,ueann^h. 

1;:: t:^;::;:.::;!;  >-'!-' '-''-''^"•^"""'' ' 


..     .      /    v,,l    M    <tii'l'<''"  •'''•  '"  '   '' 


t,,  li-t; 


t" 


PUBLIC  OWNERSHIP  AND  PUBLIC  CONTROL     411 

vites  corruption,  not  that  corruption  makes  the  political  situa- 
tion bad. 

On  the  other  hand,  this  much  must  be  admitted ;  there  is  a 
certain  kindling  power  in  public  action.  The  sentiment  of  a 
community  can  be  aroused  toward  accomplishing  well  the 
tasks  which  it  has  set  for  itself.  It  is  absurd  to  go  so  far  as 
to  say  that  there  is  an  automatic  etfect  on  the  quality  of  gov- 
ernment from  givitif^  government  much  to  do,  —  that  the  mere 
assumption  of  larger  tasks  will  make  the  body  politic  fit  for 
accomplishing  them.  But  pride  can  be  enlisted,  especially 
local  pride,  and  some  stir  may  thereby  be  given  to  smoUl'ring 
forces  for  good. 

§  7.  It  is  not  too  much  to  say  that  the  future  of  democracy 
will  depend  on  its  success  in  ilealing  with  the  problems  of  pub- 
lic ownership  and  regulation.  To  allow  tlie  great  monopoly 
industriis  to  remain  without  control  in  private  hands  is  to 
allow  an  itnperium  in  impaio,  —  nothing  less  than  a  plutoc- 
racy. To  manage  them  as  public  enterprisis,  or  to  regulate 
them  effectively  while  still  in  private  hands,  calls  for  restraint, 
abdication  of  the  town-meeting  method,  intelligence  in  choos- 
ing good  leaders,  steadfast ui'ss  in  following  tliciii.  These  things 
are  not  learm-d  in  a  day,  nor  is  there  any  certainty  that  the 
mere  imivasc  of  public  industrial  management  will  cause  tliem 
to  be  learned.  It  may  be  that  \w  in  .Xnicrica  shall  not  rem  h 
for  a  long  time  the  stage  when  we  shall  be  at)le  really  to  gnipple 
with  the  tasks  of  pul>lic  management.  The  ideal  solution  is 
that  the  great  monoi)oly  industries  .should  i)e  under  eflii  ient 
and  progressive  public  ma'iagenieiit  ;  but  lie  is  sanguine  wlio 
believes  that   the  attainment  of  this  ideal  will  come  ea>ily  or 

(juii'kly. 

To  admit  tbat  a  task  is  difhcult,  the  nut.'ome  uncertain,  i-  not 
to  say  that  it  should  lie  tiiveM  up.  Tiie  experiment  of  public 
ownership  and  (»peration  should  lie  tried,  ami  iven  ell. .it 
madt>  to  bring  it  to  a  successful  issue.  The  imo-.!  prolMi^iIlg 
field  would  seem  to  be  the  munieii)ality  of  moderate  size,  To 
put  vast  industries  now  into  tin   charge  i>t  city  gove     tnents 


'    i 


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'm^^immi^w^^m^'^x 


412        PROBLEMS  OF  ECONOMIC  ORGANIZATION 

.  v.w  York  or  Philadelphia  would  be  reckless, 
like  those  of  New  York  or  possibilities.     Even 

But  cities  of  -^^^ZX^^^^^^^^'-'^'''^''^ 
though,  in  these  also,  "^^^^Zm^iv^^^on'^  ^as  bettor 
.vretched,  the  n-vo>ueut  fo       mu^^^^^,^^^      ^^  .^  ^^.^^^  .^  ^^.^^ 

prospects,  and  a  trial  i.  to     ^  ^^^^  ^^^^^^^  .^^  ^^^^^^^^ 

.how  that  those  are  '-^^^^^^^^^^    \, ,,  ,,,,,,as,  so  much  the 
to  the  undertakings  of  democracy. 

^'''^*''-  c  •,       in  such  experiments  cannot  be  gauged  in  a 

Success  or  failure  m  such  exptr  .  jMi^takes 

short  time,  nor  -thout  reasonal.      I  M_ru mnat  ^^ 

and  disappointments  wi  I  bo  "^^^^^^  known  whether 
considerable  period  must  elapse  '-  -^  ^  ^'^  ^,^.  r,„,i  ,,t- 
,,,  ..edful  lessons  will  ^^j^^i tthe  ^^tion  will  be  always 
eome,  it  must  be  ^^^^''^^^,  .,  pubhc  ownership 
one  of  the  balance  of  gam    ^^^J^  ^^^.j  -,,  ,,iy  aspects, 

are  constantly  pointing  to  '^^  w-kn  ^^^.^^^^.^^^_  j,,,,. 

_-  slown..ss  and  indecision  m  a.lop      K       I  ^^^  ^^^^^ 

,„.  of  the  public  by  -----     ;;'j.nger  accc.m- 

modations  on  railways,  to  th.    "«^>  ,,„„l.,vees.     The 

freight  service),  ^n.rollmg    -^;    -  -  ^  ,^J  ,;^,  ,,.,,,, 

-'•'"^"'^*":u;:C^i'o^;riv.Ue  ownership      He  who 

^'"^'  "''  T:  >     mU   the  railways  of  the  United  States  and 
compares,  for  ex.unpu ,  im  .  ^^^  ^_^^  .^^  ^^y^. 

AustraUa  will  undoubtedly  find      m     ^  n  ^^^^^ ^      ^^^ 

tnvV-     »>'•  ^-  ^^•■'"  '-"^  "^'"'   :     1     .in  rv.  but  also  tor- 
.Ul  and  greater  enicicm-ymo^ 

;;;;:rT::-.  -  -'— 

The   buvuiess   and   xv.lbto.lo  ^    ^   ^,^.^ 

as  t..  its  pro  lu.ts.    Th.    "    "•     •        ,     ^,..,0,  ,11  ,orts  of  di.- 
umkhig  monopolies  supply  them    futl> 


mmK-^rrr^mmif'^-t^-  •■ir-Ar- 


•3  ^J 


i 


PUBLIC  OWNERSHIP  AXD   PUBLIC  CONTROL     413 

torted  information  and  superficial  arguments.  In  the  United 
States  more  than  anywhere  else,  their  prejudices  are  rank. 
This  attitude  is  due  to  various  causes.  In  part,  it  is  an  in- 
lieritance  from  the  older  politic^al  philosophy  of  luissez-fnire 
and  noninterference.  In  part,  it  is  due  to  sad  experience  of 
misgovernment  in  this  country.  But  to  no  small  degree  it  arises 
from  a  lurking  fear  of  dispossession.  Public  management  is 
"socialistic";  it  is  feared  as  the  entering  wedge  to  complete 
(>xpropriation. 

The  relation  of  the  problems  of  public  ownership  to  socialism 
will  be  considered  elsewhere.'  But  this  nmch  may  be  said  at 
once:  i)rivate  i)roperty  is  more  likely  to  maintain  itself  if  it  is 
coupled  with  an  extension  of  public  regulation.  It  will  be 
juore  secure  if  its  al)uses  are  done  away  with,  and  if  the  avoid- 
alile  causes  of  great  inequalities  are  removeil.  Public  owner- 
stiij)  of  the  monopoly  industries,  or  the  allernative  of  public 
ri'iiulation,  may  l>e  called  conservative  in  the  sense  of  pos- 
•  ibly  t)bviating  ciianges  really  revolutionary. 

§  8.  The  ch'ar  alternative,  then,  and  the  only  alternative, 
to  i)ublic  management  is  pulilic  rcg\dation.  Ideally,  regulition 
is  less  good,  liut  jjractically  it  may  be  much  lutter.  Ileason- 
a!)ly  successful  regulation  is  more  easy  to  attain  than  rea.son- 
alily  successful  pulilic  management. 

Some  nuitters  of  jKilitical  nuiclunery  need  attention  in  this 
case,  as  in  that  of  direct  management.  The  success  of  regulation 
depends  on  the  (juality  of  the  individuals  wlio  are  to  regulate. 
Tiiey  should  have  st.ible  teiiin-e  of  ofliet"  and  adetpiate  salaries. 
Tiiey  should  be  chosen  not  liy  popular  election,  but  by  exeeu- 
ti/e  appointment.  'l'lies(>  are  simple  recpiisites,  too  often  neg- 
lected in  our  Amerii-in  st;it.  ;.  But  tlie  problem  of  limliMg 
and  retaining  good  men  on  regidating  boards  or  commissiouM 
U  Viistly  easier  than  that  of  finding  and  retaining  n.-'U  cii|)alilu 
of  efHeient  nnin.HgemenI . 

Tw(»  distinct  type-;  n't  board  or  commission  li.ave  .appeared  in 
Amer.     'i  experienci- :    the  commi.'^sion   fttr   investigation   and 
'  .Sic  CImptcr  04,  I  4. 


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414       PROBLEMS  OF  ECONOMIC  ORGANIZATION 

powcr  ot  commanJ.    The  «  '^P  '  j  j^^  be»t-k..own 

examplo,  was  ™™»"-  -/  ',;  ^f  j  :;,  f,p,  ta  gradually 

can  ""««■-■/"  ;,,t.>  and  publicity  can  du  a  great 
c<,n,c  to  prcvad.  '""»  '^«'"  J  ,  ^ho  milder  forn,  of 
J,,,,,  but  not  '■V")''''"';  '"'  »;  "''then  ,>euplc  wore  »till 
,c,uK.ion  wa.  ^^^^J^^'ij:,,,  L^become  u»cd 

;rra:.tr::r:;n,ono.i>..^^^^^^^^^ 

,„  call  tor  regulation,  ™— on.  of  *e  ^'^^  .^^.,^ 

;r^r::;rorr  ^.-' — ^^  •■» "-  --^-f 

rt;::::::::  :l;.':,arge  l^wera  „„  the  crudal  .ue^lon 

I""'"'. "";'"""■  M,-i        state.  Bureau  of  Corporation, 
""■""r   r;:,  :  l!  ■»»      .    w.,  »hown  .l,«t  .undry  railway, 

:;:!::f,::;:::;.-o,,a.«ta,,da„io.con.^^^ 

'■ ■"■"■•  i:;:;r  1,      w:re  notag„i,.»,  ,h..  letier  of 

'    ,v  lie  .Hibvav.  lhe,n.elvcs  i,nn,ediately  on    he 
swept    iUViiy   l>>    'H<    i-i"^^».>  M,.r<.  nuhli- ty 

publi,.a.,,.n  of  ,be  1>U„  „.,V  e -"■ ;"'"  ,      ,",  :  ,  ,.„r^ 

,r      1       w..irw<-(l   larmlv    u-civusf  it  wiix  clear  tu.vi         p 

;:;;;;:;■;;:;'!;;::;; ';',n,i  .hat u-hmg  n,ore  ,!>..  pubhc, 

v,»^  in  the  huckKrtnintl. 

.  s... :-;:,^[;!r" :::::::::"-"-""'""- 


PUBLIC  OWNERSHIP  AND  PUBLIC  CONTROL     415 


i 

r- 


Prblicity  is  important  also  for  the  protection  of  investors 
against  unscrupulous  managers.  To  the  woll-to-tlo,  regula- 
tion in  the  interest  of  investors  means  regulation  in  behalf  of 
that  "puhlic"  with  which  they  are  chieHy  concerned.  Xo 
doubt,  this  is  an  important  matter,  and  of  no  small  social  con- 
sequence. Regular  and  detailed  reports  in  approved  form, 
subject  to  verification  by  pulilic  acccnintunts,  will  do  something 
to  check  the  evils  of  stockjobbing  matuigcment.  But  these 
are  matters  in  which  the  main  reliance  must  still  be  on  the  tradi- 
tions of  good  conduct  among  the  well-to-do,  and  on  the  ordinary 
machinery  of  the  law.  In  any  case,  they  are  not  the  things 
which  mainly  concern  the  general  public. 

The  essential  ol)ject  of  pulilicity  is  to  bring  about  results 
that  shall  be  advantageous  for  the  whole  commvmity.     Of  this 
simple  truth,  the  matter  of  capitalization  supplies  the  clearest 
example.     Information  upon  capitalization  is  wanted  because 
it  is  indispensat>le  for  the  inquiry  into  prices  and  profil.-.     Until 
we  know  what  is  the  relation  between  the  outstanding  .securities 
of  a  public  service  corporaticm  and  tlie  "physical  value"  of  its 
property,  we  cannot  know  whether  its  profits  have  lieen  n^ally 
excessive.     No  doulit,  "physical  value,"  of  which  so  much  is 
heard  at  the  present  time  (1910),  is  less  susreptii)le  of  e.xact 
measun-ment  than  many  people  suppose.     Even  if  it  be  defined 
(as  in  general  it  sho\ild  be)  in  tprms  of  what  it  would  now  v-iA 
to  reproduce  a  given  outfit,  the  estimates  of  experts  and  engi- 
neers will  be  found  to  differ  largely.     Figures  of  cost  or  value 
Ruch  as  are  often  published,  refine<l  to  the  last  dollar  and  tlic 
last  cent,  give  a  misleading  impn>ssit)!i  of  rigorous  accuracy. 
Hut  they  are  none  the  less  useful ;    '''>r  they  show  whetlHi'  there 
lias  l)eet\  a  gross  and  palpalile  ditlerence  between  capitaliza- 
tion  and   investiiienl.     'I'his  is  the  maii\   thing  in   whiili   the 
|)iiblic  is  interested.     In  all  such  matters  a  certain  maririn  must 
be  allowed.     If  private  industry  is  permitted  at   all,  it   must 
not  l)e  held  down  liy  a  cheese-paring  policy,     Hut  it  must  also 
tiist  ho  pornUtt'"!  i'i  j-nns'erd.  MS'der  ?-;•.«.■!>! lei!  !'.'!j>if  .'ilizji!  intis.  sain?- 

that  beyond  question  are  unreasonably  high. 


li  i 


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416        PROBLEMS  OF  ECONOMIC  ORGANIZATION 

All  the  mode,  of  reflation,  whether  by  ^"P^"'*"' P"";;;-, 
itv  or  .mnualMea  command,  look  to  the  «,„.e  end  eont,  ,1 
:rp  ceri,  ot  pro«s.     sooner  or  Uter  -*  -tro,  .  Wy 

:rn:;,:o::"::.ep.orinvest,atjo„andpn,.«^^^^ 

.Hey  ™„™o„.y  approve.  n;<-„f  ^  ^  :^  Z 
::Sn:rl  prt:i:o;te„,„e\e„.  eoneeaU.  at  the  outlet 
by  ambiguous  words  and  miUl  ineasuros. 

Direct  control  .nuy  be  of  pric(-s  or  of  prohts,  or  of  both.     Like 
tlH    ontol  of  capitalization,  it  should  have  a  reasonably  hbera 
'  Jd  to  the  returns  of  investors  and  "-"a^--  -^^  -- 
fntent  itself  with  results  satisfactory  on  t^-vho^  J^   o 
.eem  on  the  whole  easier  to  regulate  than  profi  s      R^^^ 
of  nrofits   ie.  of  dividends,  may  be  evaded  b>   extravagant 
,^:! td  bonuses.     Even  when  not  so  evadec^  .  n^oves 
the  stimulus  to  efficiency  and  progress.     Pnces,  ,t  '-  <  "^ '  ^'•'^ 
ntr"4fixeaata''reasonable-- point  as  isarate^ 

oncaptal.  Some  knowledge  of  cost  of  production  and  of  te  h- 
n- .It  details  is  called  for.  In  such  industr.es  as  that  of  ra  1- 
wly  trl  spurtation,  there  are  peculiar  <lifHcult,es,  already 
;ilu!..  Theneedofatraine.lb.lyofpennane,.^H^^ 
m..i..ls  is  obvious.  B.it  the  fact  that  th.-ir  ta>k  in  <hlha  it, 
"!  tn.nh-  vn  appn>xin.ation  to  an  ideal  soluti<.n  is  atta.n- 
;::l:X  the  task  should  not  be  underlakc.^^^^ 

All  tlu-  truths  of  eonotnics  are  approxin.d.ons,  and  all  >ts  uU  als 
can  be  attained  only  in  the  rough. 

N  t    he  least  ..f  the  things  whicl,  public  regulation  >hou Id 

"^:" :'''-:::::r::;;:;:;ii:r«::-- 

;:;::n :: .-.' X.:;.  ^ '•' rr-'T;;  ;:■:;:;  ::t 

;;:::;-::':::,!Tr,'pL:rs:;:-V'-' 

;:.  ILI  a  payh«  p..Ue,v  , .■  honest  and  lars^Uted  .nanage- 

"SecClmpt.rOO.  »  3  6. 


•al 


PUBLIC  OWNERSHIP  AND   PUBLIC  CONTROL     417 


ment,  content  with  moderate  but  sustained  profits,  and  con- 
siderate in  its  dealinss  with  tlie  community.  There  are  able 
business  men  in  plenty  to  wliom  management  of  this  sort 
appeals.  There  is  no  harm  in  mixed  motives,  and  some  mixture 
of  public  spirit  and  private  interest  is  a  remedy  worth  trying. 
The  now-pervadins  conviction  that  these  are  not  strictly  private 
industries,  and  that  tlie  i)ersons  in  charj^e  of  them  have  duties 
to  the  conmiunity  as  well  as  to  the  investors,  leads  to  a  very 
different  attitude  from  that  common  a  generation  ago.  Tiie 
public  is  no  longer  damneil.  Pressure  through  puljlicity 
and  through  threat  of  legi.-^lation  or  forfeiture  of  charters,  plans 
for  direct  public  owniTship,  demagogs'  attacks,  if  you  please, 
—  all  strengthen  the  better  attitude.  Let  it  be  made  worth 
while  to  please  the  pu!)lic. 

This  sort  of  halfway  result  —  supervision  and  regulation, 
prices  such  as  to  yiekl  tempting  but  not  extravagaut  profits, 
some  pretense  anil  some  reality  of  public-si)iritt'd  management 
by  money-making  corporations  —  is  intolerable  to  many  ardent 
persons.  It  seems  to  them  Pecksniffian.  or,  at  the  best,  patron- 
izing and  patriarchal.  .Xnd  in  truth  it  probai)ly  stands  for 
only  a  halfway  stage.  So  far  as  the  trend  toward  mononoly 
proves  irresistible,  so  far  the  movement  toward  public  owner- 
ship will  gather  impetus.  It  is  Hkcly  to  proceed  further  and 
further,  and  will  cover  a  widening  swecj)  of  industries.  It  will 
reacli  not  oi\ly  numicipal  industries,  but  national  ones  also. 
It  is  the  crucial  prol)lem  of  democracy;  and,  to  repeat,  on 
success  in  dealing  witii  it,  more  than  on  anything  else,  depends 
the  futurt'  of  democracy. 

Unwieldy  fhoush  the  fe<leral  government  is,  permeated  by  the 
vice  of  conflicting  sectional  interests  and  legislative  logrolling, 
it  may  soon  extend  the  activities  of  the  jjost  office  so  as  to 
include  a  parceN  post  ;  ami  indeed  this  step  is  desirable  for  the 
immediate  future.  Tlioiigh  the  outlook  for  success  in  the  tele- 
grai)h  and  telephone  is  now  but  poor,  the  assumjjtion  of  this 
iniiu>try  i.--  not  uiuiiinkalile.  Ttiat  uf  railway  Jiianagenirnt 
seems  now  out  of  the  question ;  yet  wiio  can  say  what  political 
VOL.  II    -2  K 


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418       PROBLEMS  OF  ECONOMIC  ORGANIZATION 

.nd  indu-trial  transformations  may  come  in  the  course  of  an- 
othe  gene^^^^^^^^  two?  The  present  century  before  .s  close 
n!ay  see  changes  undreamt  of  in  the  philosophy  of  the  bour- 

'lorthe  present,  however,  and  as  far  in  the  future  as  we  can 

see  the  mafn  task  before  den^ocracy  in  America  is  that  of  makmg 

::;Xle   and    smooth-working   ^^   PoUt^^    -^^  ^ 

of  securing  plain  honesty  and  routme  efficiency  n  the  accepted 

ncTons^ol  government;    and  of  regulating  w.th  some^to  e^^^ 

able  success  the  industries  of  the  monopoly    ype      ^^  hen  good 

results  in  these  comparatively  simple  problems    have    been 

acrieverit  will  be  time  to  turn  to  the  larger  and  more  complex 

problem  of  pubUc  industry  on  a  greatly  extended  scale. 


In 


mamrmm 


Mil 


l,i; 


CHAPTER  63 
Combinations  and  Trusts 

§  1.  Attempts  at  combination  and  monopoly  are  as  old  as 
industry.  In  European  countries,  during  the  earlier  stages  of 
their  economic  u^velopment,  such  attempts  were  subject  to 
prohibition  and  penalty.  During  the  modern  period,  the  trend 
has  been,  until  very  recent  years,  to  let  them  take  care  of 
themselves,  competition  being  relied  on  to  keep  prices  at  a  fair 
or  normal  level.  In  English-speaking  countries  it  has  hitherto 
been  supposed  sufficient  simply  to  prevent  the  enforcement  of 
agreements  for  coml)ination.  Uniler  our  common  law,  contracts 
in  restraint  of  trade  are  void.  They  are  not  per  se  punishable ; 
but  they  cannot  be  enforceil  in  the  courts.  Just  what  con- 
stitutes a  contract  in  restraint  of  trade,  such  as  the  courts  will 
hold  void,  has  been  the  occasion  of  nice  legal  discrimination. 
Some  agreements  which  restrict  competition  are  adjudged  to  be 
"reasonable,"  and  the  parties  to  them  will  be  held  to  their 
contracts.  Others  are  adjudged  to  be  "unreasonable,"  ami  will 
not  be  enforced.  The  line  of  distinction  is  in  principle  clear 
enough :  those  agreements  are  bad  which  tend  to  bring  a  range 
of  prices  higher  than  that  ensuing  untler  free  competition. 

It  is  astonishing  liow  effective  this  simple  policy  of  indiffer- 
ence has  been.  ronil)inations,  pools,  and  price  agreements 
among  manufacturers  and  dealers  have  bVen  among  the  most 
conunon  i)henomena  of  modern  industry.  Ahnost  invarialily 
(unless  bolstered  up  by  some  independent  cause  conducive  to 
monopoly  contn)!)  they  have  gone  to  itieces  of  themselves.  Tiie 
persons  forming  tht>m  have  been  both  shortsiglited  and  covet- 
ous. It  has  often  been  the  case  tiiat  all  would  liuve  made 
larger  f^iins  if  all  had  .stu<>k  to  their  restrictive  agreements. 

419 


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420        PROBLEMS  OF  ECONOMl*      JRGAXIZATFjN 

But  each  has  been  desirous  ot  increasing  his  own  particuhir 
gains,  and  each  has  iK-en  suspi"i.  .us  of  iiis  associates.     Tlie  usual 
result  has  been  that  price  combinations  are  no  sooner  made  than 
l)roken  with  much  lament  that  there  is  so  little  honor  among 
tliese  quasi-thieves.      Even  where   the  would-be   monopolists 
have  held  together  for  a  while,  com,)etition  from  outside  has 
soon  caused  their  compact  to  crumble  away.     Usually  the  out^ 
side  competitors  also  have  been  covetous  and  shortsighted, 
failing  to  see  that  their  own  entrance  into  the  iield  temled  to 
destroy  the  very  gains  in  which  they  were  trying  to  share. 
The  truth  is  that  few  men,  in  business  or  in  other  doings,  look 
beyond  the  present  and  immediate  future.     Had  they  a  more 
resolute  and  intelligent  eye  to  ultimate  results,  the  policy  of  let- 
ting people  try  at  monopoly,  but  refusing  legal  sanction  to  their 
monopolistic  agreements,  would  have  proved  much  less  effec- 
tive. 

But  in  our  own  day  the  situation  is  changing  fast,  at  least 
in  many  directions.  Far-r.-aching  plans  ami  ultimate  results 
play  a  greater  an.l  gr.>ater  part  in  in.lustry.  Still  more  impor- 
tant is  the  fact  that,  as  large-scale  production  spreads,  the 
number  of  imlividual  establishments  diminishes,  and  the 
entrance  of  new  com])etitors  grows  increasingly  difficult.  Tiie 
attempts  at  combination  become  more  persistent  and  ingenious, 
and  the  efficacy  of  a  policy  of  non-interference  becom(>s  more 

unci  rtain. 

§  2.  First  among  the  modern  endeavors  in  the  United  States 
to  prevent  the  disintegration  of  nonenforceable  agreements 
and  so  secure  a  tight  combination,  was  the  trust  devic(>.  which 
gave  to  the  term  "  trust  "  a  new  meaning  now  embotlied  in  famil- 
iar usage.  Large-scale  operations  !)eiiig  commonly  conducted 
under  corporate  organization,  it  was  arranged  that  the  holder.- 
of  stock  in  the  several  companies  to  l)e  coml)iiied  should  idl 
transfer  their  shares  to  a  few  selected  persons  as  trustees; 
these  trustees  then  holding  the  sl^.ivs,  and  having  the  rights  of 
vole  and  control  which  Iniong  to  titular  sh:ireho!ders.  but  b(-i.m; 
under  obligation  to  manage  tlie  property  for  the  benefit  of  their 


COMBINATIONS  AND  TRUSTS 


421 


cestuis  (to  use  the  legal  phrase)  and  to  turn  over  to  these  all 
dividends  and  profits.  Thus  the  scattered  owners  and  their 
enterprises  would  he  tied  irrevocably  to  the  combination,  and 
the  trustees,  as  nominal  stockholders,  would  control  every- 
thing! in  their  own  hands  ;  while  at  tlie  same  time  the  summary 
control  o»-"r  trustees  by  courts  of  equity  would  prevent  over- 
reaching of  the  owners  l)y  these  trustees.  It  was  an  ingenious 
device,  but,  as  i*  proved,  one  to  which  the  courts  refused  to 
give  the  expectta  legal  solidity.  In  a  test  case  it  was  held 
that  the  ordinary  machinery  of  the  law  would  not  be  used  to 
carry  out  a  scheme  in  effe(;t  monopolistic;  and  it  was  hdi 
further  that  a  corporation  which  i)ractically  divested  itself  in 
sucii  fashion  of  its  independence  was  subject  to  dissolution. 
This  particular  method  of  securing  tight  combination  was 
accordingly  given  up  in  the  industries  in  which  it  was  tried. 
The  onlj'  ix'rmanent  outcome  was  that  the  word  "trust"  came 
to  be  attached  in  popular  parlance  to  any  and  every  sort  of 
coml)ination,  and,  indeed,  to  any  and  everj-  sort  of  large-scale 
operation.' 

The  holding  company  formed  the  next  stage,  and  indeed  is 
still  the  ])revalent  stage  in  the  United  States.  A  corporation 
is  formed  which  accjuires  the  stocks  of  tlie  several  combining 
concerns,  --either  all  of  the  shares,  or  enough  to  give  control. 
Its  directors  thus  become  the  eH'ective  managers,  just  as  the 
trustees  under  the  trust  scheme  wer(»  designed  to  be.  Tli(> 
original  corporations  retain  (heir  existence,  and  nominally 
continue  to  do  business  as  i)efore;  but  all  control  is  unil<'d  in 
one  board.  This  device.  now;i(lays  so  familiar,  has  the  advan- 
tage, for  the  would-be  monoi)olists,  of  achieving  the  result 
and  at  the  same  time  concealing  it.  It  may  (-asiiy  be  maiie  to 
appear  tiiat  no  comliination  at  all  li.'is  l)een  .■iiT(  cted.  It  has 
other  tactical  advantages,  too;   there  are  wheels  within  wluels. 

'  Tliis  "trust"  ili'vii'i'  was  first  iiacd  liy  tlu'  Stamliirl  Oil  rciinliiTiatii)n.  Tlic 
SuKiir  Rffinois  trii'il  it  latiT,  nini  it  was  in  tlu'ir  irisr  (liat  ttir  cniirts  n-fusid 
to  apply  thr  law  as  lia.l  hccn  cilciilati'd  hy  the  astuli'  lawyers  wliu  had  frannd 
the  ;  "  rmr.  Thrsr  rr.irrpri;:;:-.,  aiiii  thi-  uthiTs  that  irirtl  it.  liavi;  all  Uifhru  to 
othiT  .  iriiis  nf  loinliiiation. 


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422        PROBLEMS  OF  ECONOMIC  ORGANIZATION 

*•     a  fnr  the  oriKHial  holding  corporation,  and 
holding  corporations  for  the  OKU  ii.iUty  of 

thus  not  only  ^-^'^^^ ^^^''^'f^^   ThL^ame  results 

„.anipulation  by  a  ^-"'^"''^.^.""t^puUlie  point  of  view; 
-inthen.ain.Usa^nt^.^"^;;^J^^^^^^^^    .langcr    of 

corruption.    Ihorc   '   ;  ,,  ,.^^,^  ,,,,i,y    be  done  by 

the   holdin,   --'"'"  V' 7, „;t',„g  the  shareholder  of   an- 
prohibiting  a  corporation  from   Ik  nig 

othc-r  corporation.'  ^^^^^^  ,^^,,  j,  ,i„,p,y 

The  last  staj?.',  an.l  the  om  to  Mu  ^^^^^^^^^^ 

that  of  the  great  or  «iant.>n>ora-.^ 

c-ompoting  -^^-''"^•'  .7^       :  r<lev.-l<m  i.^to  this,  its  con- 
The   holding  corporation  t.  n.ls  to   '  j  ^, -^  „„,„i„al 

i,„|,.|„.„.ln„-,   .....1   tlx-    slM'       ■! '  i,«li,-atinn»  no«   (I'JIO) 

„„,,„„  „  „„.  .,.«K'  .""■1;;-^ ^    '  ; „, ,„„        „„-,„^ 

W  vinlinvtul.  iiiul  "'il')'"  iw,.w,H-n  ll«.  l.ul>o^lilmtl' 

^ 7''""' '::'',,':;;' :';:!.. n,: 'I.' r..h»tc 

unitiod  .orporatMU,  .na.U  up  ,,,„„„.,i,i..,n  and  hence 

rl.-t.ly  .lisappear  as  -H--;;;-^^  ;;,„„,  i«  «  ,ue«tion 
,„,.„„..  subject  •••^  -l-'"';^^  ;tiv.lves  in<prrv  .«.  to  the 
,„„,,,  ,..,,  ..a.y  to  dec.dc.    m,.      ♦  ..,,„,,i.,e" 

,c,.ti..n.  bctw.  en  the  con.   ..lated  con  ,  .^  ^^^^^ 

'^-'^  ^^ -;' ''t:;,:;;: ':;r^>n -^    --'^- 

(lidicult  toinaUiout  \sli.  nur   u  .  ,        , 

„  ,.„„,.,r,...nn  un.lr   I  n,.l„l,  "'';^';;,,  ,,.„.,,       ,„  ,1...  ,.1..... ( -M-- 

',„lv  1.1..  r..l  in  .It.  'r  L-  -  '"  ""  ■"       "    ,^^  ,,.,,„„„|„,. !«.•  «..»H,.ri. 

,„,w..r. .ha. ....... ..■•"..^ ;'";.•":::;:';:' !,;,, "Ihii n  ....iH-rk th*.torm 

i,(  ,.,iiil.iiiuli.>n 


COMBINATIONS  AND  TRUSTS 


423 


even  whether  it  strives  to  attain  one;  still  more  difficult  to 
decide  what  Ih  wise  policy  in  dealing  with  siuli  a  real  or  would-be 
monopoly.  Yet  these  prohlouis  will  have  to  We  faced  before  long 
both  by  the  judges  and  by  the  Icgislatdis ;  for  the  holding 
company  is  likely  to  be  succeeded  by  the  form,  less  vulnerable 
before  the  law  us  it  now  .stands,  of  complete  consolidation. 

In  (Jermany,  and  on  the  continent  of  Hurope  in  gi'ueral,  a 
different  state  of  the  law  has  caused  eonibinations  to  take  a 
difYerent  form.     There  c(mtracts  in  restraint  of  trade  are  not 
voiil;   they  are  enforced  as  between  (he  parlies;  l)nt  they  may 
lead  to  jM-nahzation  if  ilecmed  l)y  the  courts  reprehensil)le  or 
inconsistent  with  tiie   pui»li<'   interest.     The  interpretation  of 
these  general  principles  has  been  the  subject  of  as  nuich  nicety 
in  judicial  construction  .as  has  been  tlie  laiglish  common-law 
principle  with  regard  to  restraint  of  traile.     Broadly  speaking, 
hiwever,  their  outc(»me  has  l>cen  |)laiu.     Ordinary  agreements 
for  pooling,  fixing  prices,  and  the  like,  which  are  not  enforceablt; 
in  the  conntri«"s  of  English  l;i\v,  are  enforceal»lt>  on  the  (*onti- 
nent.'    The  parties  having  once  come  to  an  agreement  must 
abide  by  it.     Hence  they  arc  not  prom|)ted  to  those  devices  for 
higher  combination  which  play  so  large  a  part  in  our  American 
developnjent.     The  Cerinan  KmUll  is  commonly  an  elal)orate 
organisation,  public  ftn<l  formal,  which  fixes  prices  an<l  prevents 
the  meml»ers  from  competing  with  each  otlur.     In  its  tyjiieal 
form,  it  includes  a  central  sale  agency,  ♦(•  which  orders  go.  and 
by  which  salen  and  l>rices  are  etTected;  and,  not  less  imiM)rtant, 
it  provides  for  a  limitation  and  apiiortioiunent  of  output,  each 
member  being  assigned  a  specifieil  amount  (or  proportion  of  a 
total)  within  which  he  mu-t  confine  his  product.     The  Kurt, II 
leaves  to  thein.lividual  members  a  greater  degree  of  independ- 
ence than  any  of  the  American  form>,       the  trust  or  th<-  hold- 
ing cotnpany  or  the  unifii-d  corporati<»n ;    sitice  each  member 
manages  his  cstal'li-'hment   in  his  own  way.     It  i-<  disputable 

«S.-,>  II...  vxrMut  urti.l..  I.y  r)r.  T'  Wi.lk.r.  "  I'l.-  \.>^  <  •„,„•,  r.,i..«  Mu- 
l,.,|.Mli,t,.-  (•nM.I,n,,li..M,  III  C.l.tri.l  i:..rni«.."  r„hl„;l  S.  „  „.:  Qu;rhrhj.  \u\. 
XX.  \<.  IS  (Miiriii,  liK».'.i. 


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424        PllOBLKMS  OF  ECONOMIC  ORCiANIZAriON 

whether  the  Cerman  method'  does  or  does  not  lead  to  terhniea\ 
improvements   it.ore  than  .loes  the  An.eriean,  -  whether  the 
spur  which  eaeh  ( '.erman  produ.-er  still  has  in  .heapencd  produc- 
tion outweighs    the  adva..ta«e    innn    large-scale  -nsol.la  ed 
management  on  the  Au.erican  plan.     Nor  .s  .t  clear  whe  h 
the  Orman  KurUll  is  a  mere  transitional  sta.e    hkely  to  be 
fuUowcl   i,i   time    l>y   con.plete    consolidation.      Ihere  .s   no 
such  pressur."   fron.  the  C.ernuvn  law   toward    ornung  an  a  1- 
nnl.racing  giant  n.mopoly ;  an<l  the  course  of  e.-onom.c  d.- 
velor.inent    ha.s   l.een  slower  and   more  tentativ... 

The  for.n  which  c.,ml.inati.,n  may  take  is  ohv.ously  less 
i,nportant  than  the  fact  of  c-omhination.     The  essent.al  ques- 
tion is  whether   the  conditions  of   c-ompHit.ou  are,  m  effect 
supplanted   hy    those   of   mo.u.poly.     Co.nl.ination   .loes    n..t 
necessarily  mea,.  .nonopoly ;  it  may  nu-an  only  a  regulation  or 
modification  <.f  con.potition.     Hut  the  ..l.j.-t  .>f  those  who 
plan  it  is  to  stifle  con.petition  in  so.ne  ^^'^^'^ ^^^''^  T^^^ 
preater   gains  than  con.petition   will   pernut.     In  the   In  ted 
States,  a  new  goal  of  business  an.bitio..  a,>peare.l  m  the  latter 
part  of  the  ninet..enth  century  (n.ore  spe.-if    .dly.  .n  the  d-eade 
ISSO-ISIM)):   business  l.-a.l.-rs  b..gan  t..  sche.ne  for  f.dl  mo.u.p- 
.,lv   n,.t  only  in  the  imlustries  of  .nufie.l  plant,  but  in  ordmary 
,„;;,,>fa..tunng  industries     The  Standard  Oil  enterpr.se  was  the 
nr.t   ...nspicuous    instance:    the  S.igar    Hefining  concern  was 
another.      Both  proved  financially  successful  to  a  n.urvelous 
.l.-Kree.     Toward   the   .•lose   of   the     entury   a   ver.tab ,«   rush 
for  sin.ilur  con.bination  took  nlace  over  a  great  ninge  of  nulus- 

tri.w       \t  the  sH.ne  p,-riod  in  (Jernuiny  the  KarUll  of  th .al 

,„i,u.s  proved  Mablc  lucre.sed  the  profits  of  the  mine  owners, 
,„.|  served  to  rai>.-  in  even  greater  degree  the  quotation,  for 
shares  in  their  nunpanie..  Here,  too.  a  conspicuously  successful 
,.as..  Inl  to  a  rapid  spread  of  c.md.inatio...  Th.'  trust  problem 
su.ldenlv  app'-an'  1  fu!l-fl.<lg'd. 

§  :\    Tw..  .lifT.nnt   .,u.-stions  pn"s.>nt   th.-ins.'lv.-s.     One  re- 

j.., ...  ...  .1 n..o,..nrv  ..f  th.'  combination  ..r  trust  :    wlu-ther 

it'will  have'advantaK.s  in  nuth.Hls  of  produ.-tiou  which  will 


id 


COMBINATIOX:^^   AND  TRUSTS 


425 


enable  it  to  hold  its  own  anil  bring  finaiic'!  1  Rain  to  its  promoters. 
The  other  is  concerned  with  its  effects  on  the  pul)lic  :  whether 
it  brings  advantages  for  the  organization  of  induslry  toward 
the  general  good  These  two  sorts  of  possible  advantage  we 
may  consitler  in  order. 

The  permanency  of  a  coml)ination,  or  its  success  in  the 
business  man's  sense,  depends  partly  on  the  real  economies 
which  it  makes  [)ossible,  partly  on  some  tactical  advantages  or 
so-called  "unfair"  advantages. 

The  real  economies  of  combinations  are  chiefly  those  of 
large-scale  production,  and  have  beeu  already  consiilered.' 
They  vary  from  industry  to  industry,  and,  within  a  given 
industry,  vary  from  time  to  time  with  tlie  i)rogress  of  inven- 
tion. No  general  rule  can  Iw  laid  down  regarding  tlu'm. 
Only  the  test  of  comix'tition  and  experi(>nce  can  decide  wh«aher 
nn  estalilishment  produces  mon-  and  more  ch(>aply  as  it  grows 
larger  and  larger.  The  sp»'cial  question  preseuled  in  this 
regard  by  the  trust  movement  se<  ins  to  lie  wiietlier  a  combina- 
tion of  establishments,  each  »)ri<'  of  which  is  large  enough  to 
secure  the  utmost  mechanical  elliciencv,  can  yet  be  so  managi-d 
as  to  produce  more  economically  than  the  several  estal)lish- 
ments  when  inilependeiit  ;  in  other  words,  whether  large-scale 
management  adds  something  to  the  gains  from  large-scale 
production  in  the  narrower  sense.  Here.  too.  it  would  appear 
at  first  sight  that  the  matter  may  be  allowed  to  settle  itself. 
I^>t  tliem  figlit  it  out,  and  let  that  form  of  organizaticm  sur- 
vive which  does  the  work  most  cliea|)Iy. 

Tne  question  arises,  however,  whether  the  "unfair"  advan- 
tages of  a  great  combiiiation  may  not  enal>l<'  it  to  overeonie 
rivals,  even  thoun'i  llioe  can  produce  as  eh.'. iply  and  ser\e  the 
pul>lic  !is  well.  May  not  the  great  protlueer  secure  t.ielieid 
ail  vantages  from  mere  size,  mere  leiigtli  of  purse,  mere  pres- 


sure tlirough   influeiiee  and   Ilir.Mt 


iii.'itiip'il.ilioii.    .vliieh 


will  ena' l«'  him  to  destroy  his  smaller  yet  equally  servici'alil< 
rival  ? 

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426        PROBLEMS  OF  ECONOMIC  ORGANIZATION 

this  topic,  has  arisen  from  pni  ^^    notorious 

.pecal  rato.         -  ^  ^^^      .,,nHinatiou  to  crush  or  absorb  ,ts 
prcat  ai.l  m  cnabhus  tlui    .(  eoinbiuatious 

nvaK  especially  untscarh...  a..     (  U^^^^^^^^    ^^^^^^^^^^ 

enjovcl    similar    favors,    and,    h^      \..^,^      though  one 

'-- ' 'V::i;;;n:::rvn  r;;::X-..^^^ 

p,.at  oau...  w  ".'  .  1  '        '  „,„.„  ,„„,prti„B  with 

'•"«"""■'■""■    '""^      '■'    ,     ,p„„,K„tati.,n     ..ntorprUe,     I.M 

""         ""         ,„     «..   ral..  o,..ra,i.ms ;  a,..l  ,t  w«»  tW»  Koneral 
i„  ,„rn  ,.r..,not...  l.ir«       "      '        „,;,.„„„,  „,,,;,,,  |„1  to  th. 

ri.ihvay   prct.T.n(<s  ;nt,.rstatc  com- 

" ";;::r':;:'i:;«:-"r:i';.;:'> --.".« •- 

w,,>y  tl.r.n-.-l\.>.  tluN    n,.  ^        ^^^_^^^^.^ 

::;:,i,:; -.•» •..,.  -^ ;■>  -;>;:;i,;:':::;;t 

;:r:::;:!:::;:;;:;:;;:--=--^^ 

,.nvsr  la  I-.-  -f  iM.p-rlancc  -u  (lu-  fulurc 


1 


COMBINATIONS  AND  TRUSTS 


427 


Other  devices  of  combinutions  for  getting  competitors  out 
of  the  way  are  more  direct.  Simplest  of  all  is  cutthroat  com- 
petition ad  hoc, — sales  at  prices  ruinously  low,  designed  to  force 
the  rival  into  bankruptcy  or  absorption.  More  length  of 
purse,  without  possession  of  any  real  advantages  in  efficiency, 
may  bring  victory  in  this  sort  of  warfare.  A  similar  iiM'thod 
of  crushing  a  competitor,  more  insiilious  and  efTective,  is  through 
partial  reduction  of  prices,  designed  to  oust  him  from  his 
particular  field.  Tims  a  combination  which  manufactures  a 
variety  of  articles  may  cut  the  price  of  a  single  one,  in  order 
to  bankrupt  a  rival  who  produces  that  oik  ;  the  combination 
maintaining  prices  on  its  other  articles,  and  thus  offsetting  in 
part  or  (Mitirely  its  loss  on  the  contested  one.  This  result  is 
also  secured  if  the  combination  can  discriminate  in  price's  on 
one  and  the  same  article,  lowering  tlie  price  where  there  is 
competition,  but  maintaining  it  elsewhere. 

All  such  devices  have  been  again  .•md  again  illustrated  in 
the  history  of  the  Standard  Oil  Company,  the  archetype  of 
the  industrial  trust.  In  its  sales  of  illuminating  oil, — the 
main  product,  —  its  method,  carried  out  with  remarkal)le  skill, 
has  been  to  sell  to  retail  dealers  only.  In  the  phrase  of  the 
mercantile  community,  it  <loes  its  own  jobl)ing.  In  regions 
where  there  has  been  eomiK-tition  from  other  refiners,  it  ha- 
cut  prices  ruthles.sly.  But  it  has  ki  [it  prices  up  in  regions 
where  there  has  l>een  no  comiu'tition,  and  so  maintaim-d  its 
own  profits.  This  policy  would  have  l)een  difficult  to  carry 
out  had  it  sold  to  jobl>ing  wholesalers,  since  these  not  caly  com- 
pete among  each  other  over  w  idrly  extended  marki'ts,  but  kimw 
of  eacii  othi'r's  doings  and  buy  ami  sell  among  thein>elves. 
Kach  retailer,  on  the  other  hand,  reaches  a  limited  region  only; 
he  does  i\ot  comi»ete  with  distant  retaih-rs,  or  concern  hiiiiselt 
alnnit  the  prices  at  which  they  buy  ami  sell.  Oi)vioii-iv,  s<ime 
g(H)graphical  limitation  on  its  com|)etitors  was  also  i  iseiilial  (o 
the  «ucc<'«sful  workiim  of  this  device;  the  competilorx  must 
have  lieen  kept  from  reaching  the  retail  market  at  all  points, 
either  by  trans|)ortation  rates  higher  than  those  granteil  to  the 
Standard,  or  by  the  iHt)l:ited  location  of  their  reiineries. 


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,28        PROBLEMS  OF  ECONOMIC  ORGANIZATION 

,     •      ;.  tl,P  factor's  aercpment,  so-called,  — a 

Still  another  device    s  t^^^  ^^    «^      ^  ^^^^,^  he  agrees 

contract  with  a  dealer   who  -al    ^  ;  J^^     ^^  ,,^  ,,„. 

bination  has  a     hn      of  RO  ^^^^^^^  ^^^^^      ^^  ^^^^^ 

f,vor,  the  dealer    e    .       •        o      ^^  ^      ^^^  ^^^^^^^  ^^,  ^hese 

r;:::a:::i:o;:::s.aiiersca.^ 

i„  „;arketin,  his  nu.re  limite,!  set  ''^  ^^^  .  ^  ^.^.^i^i^g. 

A  p<-^"'^>  ^•^«-'^^:;;^';r::^  irri^portant  factor 

Mere  effrontery  m  J^^^^  ,,,,,  j,  a  curious  one 

-  -^'''-"^  ^^"^    ..     V;  t  1 1  far  advertising  serves  a  goo.l 
It  is  not  easy  to  saj   ju^t  l>m  ^^^^^^  ^^.^^^^^^^^^^ 

purpose,  how  far  it  '"-^  ^^^  ;,,,^  J  Iril-ty  in  production 
wants,  introduces  new  f^^l^^J^^"!^^^^  ,,  ,,,ful  eompeti- 
an<l  consumption;  ->''  '\ '^  '*^  "  ;,,  aestructive  competi- 
tion. Hut  sometunes  M  .s  a  ^^ '^^'  .,^  j^  ,,,,tematically 
„„,     Anumg  articles  equally  good    haunch  ^^^^^  ^^ 

paraded  is  likely  to  he  mo.^^.^^^^^^^^^^ 

bv.y  Sn.ith's  wares  rath.«r  than     on  ^^^^^^  ^^^  ^ 

lower  pnc  (n>    h   P  '^    ''  ,„  ^,f  .,.,„,,.s  preposterous 

„s..),  he  would  Iml.l  his  .mn  m  .p  some  vague 

„,„,,,.     But.  in  fact,  ^ones  s  ^^^^ ^'^^l^^,,,^  „oast- 
i,npres.ion  ,>f  superiority  ^  '^'•''•^" '"    ' of  an  elTective  advertis- 
,.,.     PU-ntiful  cash  is  the  sn,c  ...  ''''      >f  ^      ;  ,     ,,^,,„„p„,„, , 
ing  campaign.     Th.-  large  pro.lucer.  or  ^^ouUl 
H,sh..eagainatacti.-aladvaut^^^.  popularising  your 

,oods.        P''--''-""7;,;':J,,n,eisgetti 

•lelude  the  purchaser  mto  <'"'"'';     \.,.,,.,,       „,,v  rest  on 

„.,  ...nihility  of  mankm.1    and  ^      '^V/,  ",,,,,,,.!  .omhina- 
„„.y  are  carried  out  on  a   arge  seal  ^^,^._^^ 

hcing  i>rom(.ted  l«y  the  fiit  thai  n.r 
and  the  l.rand  are  of  special  iiuportan.v. 


COMBINATIONS  AND  TRUSTS 


429 


It  has  been  proposed  to  deal  with  some  of  these  tactical 
devices  by  legislation.  Intentional  cutthroat  competition  — 
the  lowering  of  prices  for  the  express  purpose  of  driving  out  a 
rival  —  is  to  be  made  unlawful.  It  is  to  be  made  cause  either 
for  a  civil  action  for  damages  by  the  threatened  competitor,  or 
for  criminal  prosecution,  or  l)oth.  Discrimination  in  prices  is 
also  to  be  made  unlawful.  A  produ'cr  is  to  l)e  compelled, 
under  penalty  of  civil  or  crimiiial  law.  to  sell  at  the  same  prices 
to  all  applicants  and  in  all  markets.  He  is  to  be  dealt  with  as 
the  law  now  deals  with  common  carriers,  who  are  under  obliga- 
tions to  do  business  for  everybody  on  the  same  terms.  Neither 
cutthroat  competition  nor  di.scriminating  prices  are  now  under 
the  ban  of  the  law  in  English-speaking  countries.  They  are 
not  punishable,  or  cause  for  civil  suit,  under  the  common  law, 
nor  usually  under  statutes,  rnderlying  this  stati-  of  the  law, 
is  the  Iwlief  in  the  efficacy  and  usefulness  of  unfettered  com- 
petition. The  pul'lic  good  is  supi)osed  to  i)e  promoted  by 
allowing  every  competitor  to  press  every  other  as  bitterly  as 
he  choo.ses.  But  the  question  fairly  arises  whether  we  must 
not  admit  that  hen>,  as  in  other  directions,  competition,  on  the 
l)Ianeand  within  the  bounds  hitherto  traditional,  fails  to  work 
for  the  general  giKxl. 

The  case  is  i)lausible  for  such  changes  in  the  Uw.  Unless 
one  is  a  convinced  socialist,  and  i>eliev«'s  that  monopoly  is 
simply  a  welcome  forward  step  toward  the  eventual  a-ssumption 
of  all  industrial  management  l)y  the  state,  every  measure  that 
aids  in  maiutaiiiing  "fair"  or  normal  competition  is  good.  It 
may  be  that  the  situation  is  hopeless,  and  that,  over  a  wiile 
and  widening  range  of  industries,  nothing  can  stay  the  march 
•  f  combination  and  monopoly.  Mut  at  least  let  all  be  done 
Muit  can  be  done  toward  diecking  the  ominous  tendency. 

Not  too  much,  however,  should  be  expected  from  legislation 
of  this  kind.  There  are  those  who  believ*'  th.at,  unliss  there 
be  other  c;iu.ses  leading  to  monojxily,  changes  in  the  law  as  to 
competition  will  su!!i>e  ti>  prevent  tlnil  control  of  industry 
and  that    ventual  rise  of  i)rices  at  which  exterminating  eom- 


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430        PROBLEMS  OF  ECONOMIC  ORGANIZATION 

petition  aims.    But  unless  "fair"  competition  is  «trengthened 
peiiuon  ai  inHiistrial  condit  ons  enabling  the 

by  economic  forces,  —  by  mdubtnai  couu 
indepemlont  producer  to  hold  his  own,  -  httle  is    ikely  t^o  be 
'  S  from  this  method  of  stavin,  off  the  growth  of  monopoly 
'  Su  h  legislation  is,  in  its  nature,  difficult  to  enforce^     V 
i.  cutthroat  competition?     Mere  ^--ring  of    prices js^^^^^^ 

c.,1nt.,rv   result   of   competition.     Intention  to  wipe 
ordinary  sal  tar>       .utt  1         ^^^^  ^^^  ^^^^^  ^^^^^  ^^^^^ 

out  a  competitor,  ^''^   >^;         '  ^  ^j  production, 

for  action,  s  necessarily  diilicult  to  provt,.     v^v  f 

far  pr;.  deviations  in  market  prices,  -  these  cannot  be 
':Z  wiih  the  precision  necessary  in  ^^^  ^^^J^l 
are  necessarily  notions  of  some  vagueness.     ^\P^«'3;;;^^^. 

"  ,  rt  Vrsi».s  in  acali,«  with  tl.o  wouI.Wh,  monopolists 
cl™tl  s.  A  «.it  at  law  ba.,-,1  on  a  remodeled  la«  o 
"3'lmpe.i.i..n  would  l,e  a  very  uncertain  defence  aga,n.t 

monopolistic  aggression.  ,       ^      n      \.  montq  Creek 

The  effective  .lefense  is  foun.l  only  when  Greek  "-^t^J'^^;^' 
_.vhen  the  big  monopoly  meets  with  a  big  --P;/'  «  '  ^^^^ 
the  devices  of  "unfair"  competition  are  devices  of  the  large 
:„h  c^  uid  the  long  purse.     One  whose  pur.^  is  equally  Icmg 
S  endure  cutthroat  com,H.tition  •'nually  we    ;  w^  mj.      - 
criminatica  with  discrimination,  will  make  his  o^.n  fact.u^ 
I-nts.     Large  producers  will  be  able  to  -P<'^^; - 
though  tlie  law  of  competition  remains  unchanged.     Tb_    cal 
!;;;!;;tion  is  whether  competition  among  large  pro.lacers  will  l>e 
normanentlv  nuiiiilainetl. 

'  n  With  regard  to  the  permanency  of  compel  it  ion  between 
l.Ie--ale  producers,  two  conilicting  forces  or  tendencies  meet . 
;  .1  it    s  ,r>t  easilv  foreseen  which  will  prevail.     On  the  <,ne 

!;tl;econ.p...itorsarel,k<..ytoc™selighthiga.^^^^^^^^ 
Un.     Where  the  growth  of  large-.ale  operations  red      s  1 1. 
„.,„a>er  of  individual  establishments  to  a  do.e.i  ^-■^•^'1^1 
,,„.oHt   sure  to  get  together  sooner  or  later.     '>Y^""j;'; 
hu.id.  the    rapid   increase  of   savings  and  of  surplus  for  m- 


ill 


COMBIXATIONS  AND  TRUSTS 


431 


vestment  causes  an  incessant  search  for  profitable  openings. 
At  thi  -iame  time,  the  supply  of  managing  ability  is  constantly 
enlarged  and  varied  with  the  rise  of  fresh  generations  of  capable 
business  men.  New  capital  and  new  ability  will  be  turned 
to  every  industry  that  offers  large  profits ;  and  so  long  as  this 
is  the  case,  monopoly  gains  will  not  be  all-pervading,  but 
confined  to  a  comparatively  limited  range. 

There  can  be  no  question  of  tlie  possibility,  nay  the  prob- 
abiliy,  of  some  sort  of  agroemcMit  among  the  large-scale  pro- 
ducers. These  things  go  very  much  by  tradition  and  habit ; 
and  the  former  individualistic  traditions  ar(>  broken  among  the 
capitalists  themselves  as  well  as  among  the  social  ])hilosophcrs. 
The  notion  of  getting  together  and  ceasing  from  competition 
is  becoming  a  familiar  one,  and  is  thrusting  aside  the  older 
feeling  of  pride  in  independent  management.  It  is  extraor- 
dinary how  far  the  experiments  in  combin.ition  have  been 
carried;  not  only  to  thosf  industries  where  but  a  very  few 
largo  establishments  —  a  do/en  or  so  —  are  left  in  the  field, 
but  to  those  wh<>re  the  number  is  thirty,  fifty,  even  a  hundred. 
It  is  true  that  the  larger  the  number,  the  more  difficult  it  is 
to  form  an  etfective  trust,  aiul  the  more  probable  it  is  that 
competitors  will  remain  or  will  rea[)pear.  It  would  be  diffi- 
cult to  say  within  what  limits  the  movement  is  confined  l)y 
the  technical  conditions  themselves. 

One  special  obstacle  in  the  way  of  getting  capital  to  cml)ark 
on  a  large  scale  in  competitioi\  with  the  great  combinations  has 
arisen  from  the  consolidation  of  banking  operations  and  the 
concatenation  of  tlwse  with  the  trusts  and  Karlcll!^.  Xcv  in- 
vestments on  a  large  seali'  are  hardly  possibli'  without  being 
"fin.'Uiced."  The  linaneial  leailers  are  often  in  a  tacit  under- 
standing not  to  gel  ii\  eaeh  other's  way.  in  (Jermany,  where 
tli<'  consolidation  of  l>;iMkimi:  li;is  proeeeiled  farther  tlian  in  the 
otIuM'  coimtries,  e.acli  one  of  the  great  banking  in-tituliou-i  has 
under  its  wing  a  set  of  indu-^lrial  v(>ntur(>s.  A  i\ewc<mier  timW 
it  difficult  to  get  Mie  ii]nuhi\i  wed-:-  <-i  ::  '-.iiiker'-  I'.irkinu;. 
Somotliing  of  the  same  sort  is  true  in  the  United  States  ulso. 


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432        PROBl^MS  OF  ECONOMIC  ORGANIZATION 

guarded  preserves.  ^t^rt  to 

Among  the  forces  winch  are  '^^^^^^l^^^^^,^^  ,,eumu- 
eompetition,  we  nn.st  -ko..  n^t^ -^  ^^^  .^  J.„,„^  ,„ 
lation  of  capital  and  the  aml).t.on  ot  n  ^„,„,,i„ation 

the  POssU^Uty  of  ~  ^i;  ^ I^^^^  ^'>"- 

itself.     A  successful  ^"'"»""f  ^;';  ,,,a  best-managed 

by  uniting  in  one  orgamzat  oa     ;  ^^^^^^^^..-..^.^ts  being 
enterprises  in  a  given  mdustO  ,    h    1^  .^  ^^^^  ^^  ^^^^ 

bought  up  or  '<  rozen  out.        n^  1         ^_  ^^  ^^^^  ^^^    ^^^,^^. 
ability  and  prest.ge  of  ^1-  ^^  -»-  .^  ,,  ,pp,ar  in 

leaders  must  be  found.     But  -P^  ^^.^.^^  ,^^,i  brought 

the  established  management.  ^^  ,^^,^^  ,,  ,,,,,  ,bout 

the  original  managers  to  the  for(n>^  ^^^^^      ^^^^^^^ 

i„  the  combination  .tself     he  >^^^^J    .^  ^^^^^  ,^  ^old  a 
goodwill  and  prestige  go  a  long  ^^a^ .  a     ^  •  ^,f 

Uion  of  command  than  to  a    an^.^^^Bva^      ^^     ^^^^^^^., 

large-scale  management,   «^    ^'^  -.  ,,,,  stimulus  of  ambition 

competition,  can  be  learned  ^^^^^^  ^^^^^,^,.,  ,,  ^,Ue  ; 

i.  n.ost  powerful  among  those  .o  lave  t  ^^^^^^    ^  ^^^^^_ 

and  anv  sett Ird  enterprise  -  l>e  >t  a  tru    , 

p,per- is  in  danger  of  dry-rot  ^^^^^^^^^.^^  ^^^^^.^_ 

Whether  or  no   ^J^^^^^f,^,  bold  their  own  perma- 

rbr;:;::^:::->it;-;— 

'"♦•"'•"P''"-,^      ;..::;  V  .nn..  if  the  promts  are  very  high, 
new  ours  Will  ( on-..  ;    .      .„^^^,,^    f„rm   of    ornani/.ut u.n. 

The   trust    may  becom.    a    '''>'""^"^  ^,.,f  permanently 

and  bvg.K,d  management,  may  ma.ntam  .t.<ii  1 


COMBINATIONS  AND  TRUSTS 


433 


without  bringing  about  true  monopoly  prices  or  extraordinary 
profits. 

There  is  therefore  the  possibiUty  —  perhaps  the  most  hope- 
ful for  the  immediate  future  —  of  a  tempered  sort  of  com- 
bination, under  furseeing  management  and  with  some  sense  of 
re-^ponsibility  tu  the  public.  The  guiding  spirits  may  wisely 
conclude  that  competitors  iiuist  be  faced,  and  that  it  is  good 
policy  to  keep  profits  within  limits  that  will  not  tempt  new- 
comers. Such  is  the  outcome  expected  from  "potential  com- 
petition" :  unified  control,  a  stable  course  of  industry,  but 
prices  and  profits  not  greatly  different  from  what  would  result 
in  the  long  run  under  competition.  Very  likely  the  profits  of 
the  commanding  corporation  would  be  liberal,  but  dependent, 
after  all,  chiefly  on  sustained  good  management. 

Such  a  turn  for  the  better  in  the  combination  movement 
may  be  promote<l  by  public  regulation,  —  of  this  more  presently ; 
but  much  will  depend,  also,  on  the  state  of  miml  of  the  business 
men  and  the  well-to-do  lass.  Though  these  still  worship  the 
money-maker,  that  same  pervasive  movement  for  promoting 
the  common  interest  which  has  so  profoundly  atTected  social 
legislation  and  economic  thought  is  beginning  to  make  its 
impression  on  their  ambitions  and  ideals  also.  More  is  heard 
of  fair  profits  and  fair  prices,  l(>gitimate  methoils,  honest  gains, 
a  " rea.sonable "  regard  for  the  public,  —  phrases  used  in  a 
vague  and  question-begging  way,  but  none  the  less  significant 
of  a  tempered  attitude.  The  monopolist  is  not  a  popular  jn-r- 
son.  Kventhouiih  he  shelter  himself  in  the  company  of  those 
to  whom  money  is  t!ie  sole  test  of  distinction,  he  feels  the  sting 
of  general  reprobation.  This  change  in  public  feeling  works  in 
f  ivor  of  that  sort  of  n  !iagement  which  is  both  moderate  and 
f  irsighted,  is  |>i  rtiaj)s  i  matter  of  shrewd  expediency  as  well  as 
(■!' higher  spirit,  bi'   it  all  evcnt-i  promotes  the  general  interest. 

§  .').  What  now  are  the  possible  advantages  of  combinations 
for  the  community  ? 

The  only  one  seriously  wortli  ctmsitlering  is  the  avoiilance 
or  mitigation  of  (luctuatious  in  iruluntry.     The  irregularities  of 

VOL.    II    —  J  K 


li! 


i 


.  1^1 


n 

I; 


■;>"%n- 


i*    % 


t 


,,     f 


If 


434        PROBLEMS  OF  ECONOMIC  ORGANIZATION 
productio  a„<l  employ,no„t  arc  amons  .he  "-^  ji'J^;;  *° 
,ap,  ao  »,....J,in.  ^  ,.  .<■     .hc^     U  ,s  ar.u.i  _^^  ^  ,^^  ^^ 

-vab,.  .ha.  i.  may  ,n......  y   "'-.IXr  -.'-'- ^    "" 

at.cnapt  to  ra.sc  p™..s  »"'    ""^  '^  n^  „f  conuH-.i.or, ;  a 
with  8p..o..la.ion  ami  manipulal.on     tl«  r»*  o  , 

■     .•  tluwo  -iro  fani    ar  episodes  i)l  recent  time. 

rcorRamzation,  — the.e  are  la.u  i  .v.^u.^s  tliev  aro 

T»,ov  do  not  make  for  ..couoniK!  ^ tea.lmess.     1  erli.ips  tne> 
They  do  not  man  coinhinaiions  arc 

but  transitory  and  will  ^'^-^^^'  '^^  ^lu   m.m 

better  gauged  by  the  investh.,'  aud  hus.uess  ,....hc.  ih  re 
mlvV-e  a  development  of  farsi.hted  manu^emen  and  table 
r^b!:L,  an/therewith  the  less..-.  ^^^X^- 

Tmr^o'1 1;::!^-  "^  an  industry  which  ha.  been 
peclX  Object  to  them,  and,  it  must  he  admitted,  with 
:::!;Lsii  results.  Itistrue,also.tliata.r...^lu^^^^ 
ways,  the  pro.-ess  of  consolidation  has  check.>d  the  forn  r 
alternations  from  feverish  new  instruction  to  complete  .taul- 
S  <-al  piins  for  the  community  would  come  if  in. lustna 
tL^^Z^  l>.  made  to  take  place  nior.   systematically  and 

^tr;;:' supposed  .ain  from  combinations    in  som^ 
allied  to  that  just  considered,  is  in  the  elu.un.tioa  of  th.  sup 

,1...  K,.n..n.l  sohj.Mt.  h.lwv.s  u,al    ',';.  ^•;' '  _;;^^   ^,^,    '  ;„   ,„^  opinio,,,   h»vo 

„,.,-.m,plish-.l.n..ninll.i«.l.r,.t.o.i;  Lul    U'  ■""',.' 
Jight.     Soo  hi.  K.r<c:«e  unJ  IW.  d'Jl").  P.     '-"•  '""• 


!' 


COMBINATIONS  AND  TRUSTS 


435 


posed  ruinous  effects  of  competition.  Under  modern  condi- 
tions, it  IS  said,  competition  is  maintained  to  the  last  ditch. 
When  a  great  plant  is  once  going,  it  will  he  iiept  going  so  long 
as  anything  at  all  over  o])erating  expenses  is  earned.  Railway 
competition  best  illustrates  this  sort  of  extremity  (though  accen- 
tuated by  the  peculiar  conditions  of  railway  transportation). 
But  any  industry  having  large  fixed  capital  is  in  a  similar  case. 

•  r>  all  of  which  it  is  coni'hided  that  u'lchecked  competition 
■.V'ii  mevit^'ilv  be  carried  to  the  point  of  general  disaster  and 
;!.i.i     (iMJ,:.-  ,'      i  is  the  sole  means  of  salvation. 

'!", '  ;  ■-: .'  U1S  some  foundation;  hut  it  cannot  be  c;irried 

\  1  ,     '  , :   '■>  .'.;      lere  is  an  analogy  between  the  capitalist  pro- 
.■'■■■■  lu,  -  .    going  concern  with  large  ])Iant,  and  the  un- 
•,' i  i/    ■    ';  !.>'  ,er.     Both   have  to   face   a  tendency   to   <'om- 
P-     'r.       :  tin  itting  of  standard   prices.     Neither   can   wait 
.iUi.    I   '<!         Just   as  the   laborer's   working  i)ow(>r  goes   to 
'.     '    ii  !it-i  i...ed,  so  (he  capitalist's  plant  ami  overhea<l  organi- 
..-.■..■   !  ;i;.K  ii  definitive  loss  when  th'-y  are  I'tle.     Hence,  a 
wholesaler  or  "jobber"  c.'ui  play  olT  oil''  producer  against  an- 
other,  and   nil)l)le   away   at   "fair  "   prices,     lidice,    too,   the 
disintegrating  iuflnence  of  competition  on  the  minor  conditions 
of  the  bargains.     Then'  is  disguised  price  cnttmg  by  manipu- 
lation  of   discounts,   by   allowances   for   packing   and    freight 
charges,  by  easy  interpretation  of  what  are  damaged  gtxxls,  liy 
ac,  -pting  nniittan.ces  in  local  checks  instead  of  in  standard 
funds.     Similar  dist^uised  cutting  of  the  standard  rate  takes 
place  when  laborers  '\rr  overcharged  for  tools  and  materials 
('a  the  case  <.f  min  'S  f  )r  ey:un|)le),  or  are  called  o:i  to  work 
overtime  without  e.     ■,"  i)ay,  or  to  submit  to  manipuhition  of 
l>iecework  rates.      'I  lie  aiialouy  must   not    lie  pressed   !•>,)  I'.ir. 
The   capitalists   aic   not    so   likely    to   siitTer   seriously    as   llic 
l.il)orers,  iior  is  their  bargaiiiing  so  niucli  v.cakeiied  by  the  Lek 
of  standardized   definitions.     Vet    some  analogy  thcii'  '.-.     In 
both  cases  there  is  a  chance  for  the  (lurchaser  to  play  o(T  one 


I  lier 


against   t. 


otMT,  ana    in  hotn    tiierr 


■•»•  cjiisrs  wiucn 


!  '; 


n 


m 

I: 


justify  permanent  or[;anization  lor  combined  action. 


If 


il 


tri 


m 


^ 


436       PROBLEMS  OF  ECONOMIC  ORGANIZATION 

;!  ^Tftcn.,,.  thin.  fr...n  o,,.-  .,.  ..lin,ina.,n«  CH,m,K.,«o„ 

.>f  tl...  l)nsim'>^8  class  talk  nowadays  as  it 
Yet  many  i  .„.,..,...  ruinous  to  producers,  and  us  if 

KarUll      Competition  does  not    p.  on  automat.ca  Iv,  or  .rre- 
tec  t  of  th    ultimate  outcome.     The  troubles  of  cap.talistB 
fl    'excessive"   comp<-tition  will  brin«  in   time  their  o^^a 
^     ^^ple  will  n<.t  continue  indefinitely  to  invest  m  indu. 
ries'wlos    profits  are  wiped  out  by  cutthroat   --^t^' 
T  e  r  al  source  of  difTu-ulty  for  the  capitalists   not  cCarly  rnr- 
r  ve       V  tl'o-  -ho  say  th.t  n.o.lern  conipet.t.on  of  nece^.ty 
:i    d-Llter,  is  the  constant  pressure  of  new  accumulatioi. 
...    'men  .   and   the   co.i>taut    te.ideiicy   to  a  decline  of 
r,f       ,1  known  and  established  industries.     From  th.s  pres- 
^  '  h     Ii.ie.s  and  investing  public  is  always  tryu.,  to  eseap^s 

"t  Ibv  th..  wh..lesome  pr ss  of  in-provement    invention 

;;;;:,'uu:o,HM.iu,  of   new  ..elds   partly   by  the  noxious  one  of 

enmbination  and  monopoly.'  ^.^mnotU 

Tl,,.  real  evils  to  th.-  b.>.ly  I^'liti'"  fn.m  "ru.n.H  s     compot, 
tion    an.l  th.>  r.-al  «ains  whi.-h  ..ombinati.ms  niay  bnnR.  are  o 
:,   t  mention...l  :>  mom.-nt  a,.. :  they  bear  on  the  stea.  .n..ss 

i,    In-,     von,,.. -it. loes...n.ltoah.n.a..o.uH.H.twoen 

t    i,    ativitvan.IduU.l.u..-i..u.     ( •omb.natum  may  con- 

.        ..vmi.i.a,e.h...t. -      H  it  .1...S  ...  witl^ut  brinKU^ 

■  .    K         if  the  iMiice  an.   '-r.hr  l>e  not  those 

II  tvranu.nis  mono  »>1.\.       "  '"•   I"'"  .,,  ,         .      „ 

f      ;,>.>tism.       a. I r  ....an  social  imp..rt  wiU  have  lH.n 

„,      ,,,„,„,,„,...,,,  i,  is  by  no  m..aiis....rtam  that  this 
!     tileout ..ewmb...va..h..d;andin«ny..ase.t.savery 

.h.T..r,. in  i.^  ,..>i.l.-  asp..t.  fr .hat   .----;;; 

prolits  through  the  ..hMUMa,i.m  ..f  .•.>mp..t.t...n  whM.h  the  bus, 

ness  and  .nvesti..«  .iass.s  un-  .lis,H.se.l  to  weh-ome. 

.  r , «,.h  «....  «-  -•  ■■"  "•-  '■■••'■'  "■  "■"'"  ^  •    '' '■""  ""■" 

l,r...l.irli..ii  ana  (U.niiMMin.i.t. 


COMBINATIONS  AND  TRUSTS 


437 


§  6.  Legislation  with  reference  to  combinations  has  hitherto 
proceeded  in  the  United  States  in  the  way  of  repression.  Pro- 
hibit, penalize,  prosecute,  —  such  has  l)een  the  policy.  The 
much-discussed  Sherman  Act  of  1890  made  monopoly  and 
attempt  at  monojwly  n  crime,  so  far  a.s  the  wide  jurisdiction  of 
the  federal  government  over  interstate  commerce  gave  scope 
to  such  repression.  Many  states  have  enacted  similar  laws, 
applicable  within  their  own  limits.  In  addition,  it  is  to  be  said 
that  at  common  law  an  agreement  or  conspiracy  with  intent  to 
bring  by  combination  an  increas«'  of  th«'  prices  of  "  necessaries" 
is  a  crime,  and  punishable  as  such.  There  has  been  no  lack  of 
drastic  law. 

To  all  intents  and  purposes,  this  policy  of  repression  has 
been  a  flat  failure;  just  as  it  has  Iteeii  a  failure  in  the  some- 
what analogous  case  of  railways.  Quite  result  less,  perhaps,  it 
has  not  Immmi.  Some  of  the  more  arrogant  combinations  have 
been  restrained  a  bit,  an<l  here  and  there  competition  has 
Iwen  galvanized  into  activity.  lint  on  the  real  course  of  indus- 
trial development  and  on  t!ie  essential  coinomic  consequences 
of  eombina  ions,  the  cffeet  of  all  tlii>  prohibition  and  penalizing 
has  iKH'n  virtually  "//.  <>M  (oinliinafions  have  gone  on,  and 
new  ones  have  l)ecM  formed.  The  familiar  methods  of  cut 
throat  c(mipetition  have  been  con'inue*!,  whether  within  the 
pale  of  the  law  or  not.  The  investing  ai'(l  siwciili'ting  public 
hits  U'en  tempted  as  before  l»y  the  liiiit  «»'  alleged  coiurol  nf  a 
field,  and  has  Iw'en  swindleil  l.y  manipulation.  Th'-  comiiina- 
tions  have  not  evi  ii  Ix'en  driven  inln  hiding,  though  they  have 
Im'^'u  made  more  ^irciimsperf.  The  business  world  has  gone 
on  with  its  exf)eriinents  atul  contests  virtually  regardless  of  the 
law  of  the  land. 

Pretentious  legislation,  lame  and  inrlTective  in  its  results,  is 
the  bane  of  our  d  •  locracv  The  (ir^t  re(|uirement  for  luisla- 
tion  on  such  matters  is  th.it  it  shall  be  e(Te<'five  a-  f.ir  as  it 
goes.  The  eouHe  of  economic  deveIopin<'nt  is  so  uiicertaii\ 
that  far-reaching  n-ulls  <'annot  be  evperiiil  from  any  laws 
thttt  we  can  now  plan.     But    some  things  ean   be   done,  and 


if 


111 


1 


l^i 


r    .11 


Ii 


^...  ,  -  .._ 


:=S^ 


^^j^ssKi*  ??^'^^^i-c  ui 


u 


\  I 


438        PROBLEMS  OF  ECONOMIC  ORGANIZATION 

at  present  the  only  polu-y  ^^^^^  ^t.  be  done  in  the 

First  a-n.  the  th.nj^^^    u^  ;^^^^^^^  ,,  ^^,,,,i  ..„,. 

United  States  «  the  clctuu  nc     .  ^^^  ^^^^  ^^^^^  j^^ 

troi.     Lar«e-.ale  --<;;   ^^  ^^^^^  3,,..,  ..  CV.pora- 

tions  is  but  a  Ix-RummR.     l<  «'»»''  ;         ^^  shuuUl  bavc 

than  tho«e  of  n.erc  '--y^^'X/r    Commerce  Com- 
a  scop.-  analogous  to  Ihut  of  the  lut.r.tat 

mission.  ,    •  ...  thine  to  be  secured  by  svieh  a 

The  fir^t  and  most  obvun  s  thing  to  ,v  ^^^^ 

.        J    n,ir..iu    or    (  ommisM.m  i^    gnam     \ 
Htrengthened    »''"•'""'         Hupervisi.m  of  bu,.ks  a.ul  records 
through  regular  repor,>.  ^^^^  ^^  .,,  ^^...,  „,, 

»,y  pubhc  accountant..        ho  ',  ^^^  ^^^^^^  ^^^^^^^^^,^,,,^  ^^^^.j 
matter  lH.tweenu>vest<.rH  on  th.  ^^^^    ^.^^^  ^^^^^^,^^^^^  ,,, 

n^anagers  on  the  otlur    un.l  su  f..      •  ,„„,.,Hune..  to 

the  general  pubh.  a  >sn....f^^^^^^^_^^^,^,^ 
t»"Mn.bluS  for  there  ,s  m.df^^^ 

,..,i.lation.      We  kn.,w  too  >>"'    "  .  ,,^^   „„.,  ,„,,.  ..en 

..„.huK.u>n  h..  brought  U...M- 

,,.  about  ,he  hkehhood  ;'  ^      ^^  ^^  ,,^^,  „,  „,,,,,,„„.nt  .huh 

^^'^''''^''r'Z  :Z^'n...^ .,.  h.,ne.t  toward 

h«i«  jUHt  lH.en  referred  to      :''2L  more  moderate  ..> 

,.eMor.  u.ore  far.gl.ted   m  J^^ 

r..,ards  pr.ees  and  P^"'*'^-  J  .^,,^,.,  ,„.ius,rv  u.ll  beeon.e 

,ome  m  thes..  n.at,er0.o.   f.       m-  ^^  ^^^^^^^^^^^^ 
li-turedw,thsume..ns..  u  J        ^^^__^^^^^ 

1,.,   ,,,,.„         Uut    rlT.rlur   puMt..t>    VMH 

,,,.vele,.men.   u.tla    l«t'.yl'-''''-  „.,,,_ 

Another   ol,ee,    ''^    -■''■■•^^■''''"''''       .;;             ,,p.,:d.^ 
,,,,.„n.van.a,^.bH.eeuu.^^  „.. 

of.mmop,.lypruht-,ln,tuMl>.Ml.u-' 


COMBINATIONS  AND  TRUSTS 


439 


regulation  rests,  therefore,  in  the  main  on  the  same  grounds  as 
tlie  general  re<iuireuient  of  piililicity.  It  can  prol»ably  l>e 
superviseil  with  effect  only  hy  iiirorporation  under  f<"iera! 
law.  So  long  as  the  matter  is  left  to  the  fifty  odd  legisla- 
tures, there  will  inevitably  be  some  complainant  or  inditlennt 
states  which  will  virtually  nullify  a  watchful  and  restrictive 
procedure  amou};  the  majority.  Federal  incorporation  will 
seem  to  many  persons  a  drastic  step.  But  hiiwfver  unwelcome 
cciitrali/ed  coiiirol  may  l)e,  it  nuist  l)e  admitted  as  inevitable. 
Industrial  oriijuizatiun  has  uutgrown  local  and  sectional 
bounds.  Political  organization  and  public  control  must  enlarge 
corres|)ondingly. 

One  inunediate  and  important  jihase  of  the  control  of  com- 
biiuitions  is  the  "holiliiig  company."  It  may  be  going  too  far 
to  prohil>it  at  unci  any  curporation  from  Iwilding  the  shares  of 
anotluT.  Hut,  at  the  least,  full  information  should  be  li.id  as 
to  tlioe  intcirelalid  com]  ..nii-i,  The  whi-els  within  wheels 
are  often  i)Ut  dcvic<'s  for  concealing  the  real  situatit>n,  or  for 
easy  retention  of  conlrnl  !iy  a  few  iioider^.  (ienuine  publicity 
will  lie  secun-d,  ami  etTc<'.ivc  regulation  ma<le  i-ossilde,  only  if 
llw  whole  story  is  put  on  public  n  cord. 

Control  of  prolits  through  the  regulation  of  pri<'es  is  a  still 
more  drastic  steji,  and  one  not  now  formally  proposed  by  any 
one  in  responsible  olhcial  position.  It  is  obvious  enough  that 
this  is  the  thing  ultinnilely  aime<l  at.  As  in  the  ca**'  vi  the 
public  service  industries,  the  essential  thing  is  the  effect  on 
the  di>tnbution  of  wealth.  I'ubliiitv.  supervision  of  capitali- 
Bution,  and  the  like,  all  look  to  this  main  end.  Perhapi*  com- 
paratively mild  measures  will  sudicr  to  prevent  "undue" 
prolits  anil  undue  meiiuality.  Hut  if  combiiuition  continues 
to  spread,  and  to  iTuig  alMint  coiidiliniiv  ri' dly  different  from 
those  of  tlie  compclilive  rrunne.  direct  c<p|itrol  of  priec>  ami 
profits  nuHl  •■oiiK  -ooiiiT  or  Liter.  As  m  tin  clhc  of  i hi'  publie 
service  industiie^,  tills  eventual  step  IS  implied  in  the  very 
lit-t    tnove,       I'he  I  :ixk  Will  U-  difficult  enouirh,  in>t  li  s«i  tllllicillt, 


M 


M       r;A>: 


• 


probably,  lliaii  ih  .t  of  liMiig 


n  asi.uin 


rallloai 


I  rate 


Hut, 


II 


m 


Mt. 


Vi  k 


440         PUOHLEMS  OF 


ECONOMIC   ORGANIZATION 


must  see  that  it 


,|„.  <hiw  to  !»■  WlaKHl .'     What,  .  >  t  .  ^^_^_ 

,,„„«,„„.  .  ,,„„l.i„a,i..„  „r  "">""'"'>,'";;,.,  „.,„„,  such 

„.  often  .uffic  tor  .1 '■'""'"'t'     '  ,  "  L  ,.  c„n,l>ina.i.n? 

More  size  is  not  comlusiM. 

,..en,,  .  .u  ,.api.a,  ""'' ;;;t;;;;T;  ,^::,  'ir:     rnnn.. 
,„„  in  ,u,.h  n,ann,.r  a  "  "  .^.,.  ,„,„„,„„.     ,„  .,,. 

Nor  i«  possi-s-nin  ot  llu'  hi  M  •'  „ 

„.„.  ,,i«c.n..U,n,  i.  I.  -"•'■■■';' ';;,M^:.nin,h,.ry, 

i,  is  virtually  in  al»..l....'  ™"''''\„  '      „','     ,  ,„.,,  ,,.,  un.l.T 

Tl„.  tras.  nmy  have  v,s..r..us  •"'"'»•"'";;,''    ..,„t  ,„„„ving 
(„«,ht,..l  .■■,ons,.rva.iv.-')  mana«..,n..n,  .,tl.  a  u,w  to 

"";:::;:;:;-!« i. ; --r--;^ 

rtr,;:';':;. .--t;:::,--:— 

r.l  in  in,h.s,n,.s  suhj-.  ."  ''"''■"7   '  ,",',,„    ,,„u,.,, 

tin,.. 1.T  II-  i"«un,.-.-  ..f  a  tavorahl.       rn  u^ 

..<„  u  l,,.,.aus..  of  lu„ na«u,«  '^      '^  ;^  ;,„,  ,„„  „ 

lar«..  .-apilal.  a, .pi™"...     1  l."M    ■■  ,,„  ^ 

■""-   "";V     :      ,"l  l,.„!,ln-.l  nul. 

f ;:::::;:':;;:  I. :".' •.•• '^ ■ 

li.„„,  nu.nut  1...  ^1.  u.lilN     '-  "r  ^,.,.„^ 

H„.l    on    H    .•(msi.l.Tul.l.-    -ul.  .      >"tii  ^ 


COMBINATIONS   AND  TRUSTS 


441 


naturally  from  competiTion  ami  the  higgling  of  the  market, 
from  the  wish  not  to  "spoil"  an  accustomed  price,  from  the 
emleavor  to  stave  ofT  t  iie  (consequence  of  an  oversupply.  It  is 
only  where  one  net  of  huA'ers  an-  continuously  charged  prices 
substantially  high«'r  than  ore  charged  to  others,  that  we  smell 
monopoly. 

Tiie  strictly  economic  indications,  however,  are  not  easily 
applied  in  legislation.  1  siit^iwct  tliat.  certainly  a.s  a  first  step, 
the  law  niu.st  go  hy  the  nun-  i.ut  of  ^i/.c.  All  large  concerns 
—  large  in  lemw  of  "apital  or  >f  output  — may  he  compelled 
to  conform  at  lejist  to  the  it'(|uirct!ntit  for  rejiort  of  the  simplest 
facts,  such  as  capital,  output,  and  prolit>.  Such  information, 
continuously  secured  for  a  st>rifs  of  years,  will  serve  jis  the  basis 
for  further  inquiry  and,  very  liktly.  lor  further  legislation. 

Of  cour.<e,iu  iiKiuiric.s  of  this  sort,  "  lui-iiness  secrets"  will  have 
to  be  safeguariled  ;  just  as.  in  matters  ot  ta\atiot\,  inquiry  into 
the  affairs  of  an  individual  must  not  l)e  prc-'Sdl  too  minutely.' 
Husiness  secrets  are  not  so  sacrosanct  as  is  iinpiiiil  in  the  busi- 
ness man's  usual  mode  of  sp h.     They  are  in  thr  ia.st  analj'sis 

like  patent  rights  and  large  profits  in  new  Venturis,  -  devices 
for  sjHirring  invention  and  initiative.  Rut  Icuisjation  must 
deal  with  men  and  nuumers  as  they  are,  and  will  fail  of  its  object 
if  it  runs  c<»unter  to  rooted  habits.  Thri>ughout.  on  all  these 
new  and  tliffiiiilt  |irol>lcms,  it  must  proceed  by  uuanled  steps, 
its  very  din-clion  unpirceivfd  liy  the  great  majority.  ,\s  half 
phrases  contt-nt  most  men,  so  half  measure^-  alone  will  b<>  accept - 
al)le  to  them. 

The  conclusiiH!  rea<hed  in  this  chapter,  whether  as  to  the 
fiitun-  of  industrial  de\i  lupnient  <ir  as  to  the  expedient  course 
of  legi.slalion,  will  seem  to  the  reader  to  have  no  very  icrtain 
sound.  This  hnk  of  pn  eision  and  conlidence  is  iiie\  ii.ilili' 
The  truth  is  th.it  we  c|u  not  know  just  where  we  stand  in  the 
matter  of  trusts  and  eomliiiuiti«ins.  We  do  not  know  how  far 
the  trend  to  monopulv  is  inevitable,  nnr  i|o  we  know  how  far 
legi.slalion  is  now  called  fur  or  what  furtlier  legislation  nmy  Im' 

I  .Sii-  KiHik  Mil.  (  Imptir  t.7,  )  I. 


r.  i 

I  ■  I 


I J 


^        PROBLEMS  OF  FrONOMlC  OUC.ANMZATION 

view  the  proRre,.  ..t  "'''''''f  ^  ,,X  „r,»t-    Tlu- lar,..  out- 

s„„aing  tact  « .1-  <-»"»P*  "'.-"'T;rr,"l.  •/  H.-  ™-"'"" 
tion  anrt  m..n..|u.ly  ar.-  Ilu'  .m      .  „  ,,„„„,  p„.. 

mu  inequality.    Th'  "  '"^  „,  ,.„,„pel.tio..  a...l 

,i,„„tion  when  h-  «m^'  "'  l'  "  ,,,,  „,,„,„,„  ,,„  „,,,  t„ 
,,,n,W,.ati„n.  The  l...ur«e..-  ";':„.  „i,|,  .,  ,„„.e  that 
,,p,es,  or  to  resnlate  '■'■"■'•"""""■'"     ','-,„.,,„,„,il,  l.rinj, 

(„ll.fle,lKO.I  mnnopol,      1  '  „,„  „„,,  „.ill  ."..««<• 

,he   .tate  will  .->;'•";■""';'.„'     s,eiali..n  1<  th"  -  «"»' 
„„  ,„,^.,oale  '-■:';;•, ;,l„,e  „„,,  ,„e  Inevital.le  ,■„., 

';:',:r;;.r:::.::in...fi.»p...— '-■ 


CHAPTER  64 

Socialism 


-,-. 


§  1.  Socialism  proposes  to  do  away  with  the  syHtem  of  pri- 
vate property,  and  e^spccially  with  that  system  so  far  a.s  it  leads 
to  great  inequalities.  It  proposes,  above  all,  to  do  away  with  the 
leisure  class,  and  with  incomes  from  interest  or  rent,  —  to 
allow  only  incomes  secured  by  labor. 

In  the  (inst  half  of  the  nineteenth  century,  8cheme»  for  small- 
scale  socialism  were  rife.  They  contemplated  select  comnmni- 
ties,  oases  in  flu-  conij)etitivc  desert.  There  men,  having  left 
the  selfish  life,  should  sliare  t hi ngs  in  common,  without  strife 
or  victories  or  privileges.  Su<h  conmiunities  have  b(>en  estab- 
lished in  many  countries,  most  frequently  in  the  United  States, 
where  the  spirit  of  freedom  and  non-interference,  if  it  has  led 
to  great  lengths  of  individualism,  has  at  least  permitted  men 
to  exiKTimeiit  freely  with  communism.  I'sually  the  societies 
or  a.ssociatiuiis  which  have  tried  these  experiments  have  been 
communistic  in  the  narrower  sense  ;  that  is,  all  things  have  l)een 
shareil  in  conmion,  and  all  mi'mlters  have  been  on  one  level 
in  respect  of  income.  But  such  complete  leveling  is  not  an 
essential  feature.  It  is  quite  eoii(('ival)le,  and  not  iiicimsistent 
with  the  ideals  of  the  societies,  thjit  lenders  should  be  dis- 
tinguished not  only  by  their  fX)sition  of  lea<lership,  l)Ut  in  some 
degree  by  their  income  as  well.  Usually,  too,  the  .societies 
liave  had  a  religittus  ba-is.  Hut  this,  also  is  not  an  essential 
characteristic;  some  have  been  frankly  unreligious.  It  is  true 
that  those  infused  with  a  religious  spirit  have  la.>ited  longest, 
and  have  been  most  succes,sful  Iwtth  in  worltlly  and  in  -piritual 
ways.  .As  a  rule,  the  exi)eriments  have  collaf>sed,  jiffer  a  com- 
paratively short  periixl  of  tri;d;  yet  a  few.  luider  leailers  of 
conunuuding  personality  and  fervid  religion-,  spirit,  have  had 


'     til 


I  'i 


E.  i\ 


(i  If 

r 


'1' 

1 1 


4«        PROBLEMS  OF  ECONOMIC  ORCANIZATION 

the  n-clorn  socWist  ""v™-'^  J^^    "^^^^        f„  ,„^..,ealc 
«„cW,sm  lo..k»  not  .,.  y-^^^^     „.W„„„a.ion    ot    uH 

liety.     Ma,hin,.ry  an,,  hug..  ™ -'™    ."'^   ^^'^.tion  and 
aivWon  ot  lal«,r,  .la-  u»e  ut  B"-^  l^""'         _,/.„„„.    ,„.  „,, 

,„han,c  on  a  Rroa.  »*.-.*;J  '„,  ^,.,,,  i,  to  'ue  left 
under  pulilif  inanagmu-nt.     No  comer 

1    I  i.v  i\,..  mowsa  ot  transformation. 

This  transtormatior,  Is  to  "e  ^ 

aecon,„anK.,,  „y  other  eha,,,..  on  y  so  far  -  "^  ,J^„,„„y 
i„..vi.a,.l5  tro,,,  .h»e  ot  an  "—  ,  °^„  jVoeial  institution, 
soeialists  advocate  .Ws  m  "»"■■'<"  ,„„,.„i.ation ; 

„„„._  in  religion,   in  the  f'^'       "    ""  ,,.  ^nlial  a, 

.„„,  to  sou„.  an,o„.  th™,  »-'-";,,.,.„„>.  „,  „„h,U,„ 
ehanges  slr.elly  eeono  nn  .     ^.t  tier  „„.,,,„ily 

.„,  ,h,.s..  n.atters;   and  the  -;«''';;''"'"'"  „„,,..,,,|,|,.  that 
,.,„,,  ,„  ,„j.  .,„.  pohey  n*.rdn«  the,  .         ^      " 

,„„  ,„>.,a«,.  state  should  eoneern  ''»    '  "     ;';j,,,,,      ,.,,„„„, 
,,  httU.  as  do..s  the  state  .n  our  •^'■"■"  -^'^J,,,,  ,,.;,„„;. 

.»*' \''-'';;:;;t,'T.;rr::,a;;:,:des.  ....i.»i..y 

rrio:;':u:n::>:;;.)"u.d»,eia,.-tsa...ra,.uyn- 
;Un-;_ ^ :'T:zz'zxtT:'i^. 

i;;r".re':/:: -.;.!. .-;;;i.;-,^*':-^ 

s,. to  1...  on t .le  ."  ""•    ""-  ''„    .n'lt  on,.ar.l 

in  th..  t ly  aod  o- ;»•"  ■■   '"l"-":^,    ■   '    ,     ais. lieve 

'- - ':::;:,:;:::,;:.' :,h:.i.a."' ia«e.or 

'"■--" ;;""-x: ::  r::^;:,:  o,  ::;n.- .ni.ir..n. 


SOCIALISM 


44o 


—  of  this  more  will  l)c  said  in  the  next  following  chapter.  But 
marriage,  ihe  family,  the  home,  might  he  expected  to  remain 
very  unvh  us  they  now  are.  Nor  is  any  particular  form  of 
political  organization  essential.  Here,  to  be  sure,  there  is  a 
great'-r  approach  to  unanimity  among  the  socialist.s  than  on 
some  other  j)oints.  To  mo.st  of  them  Ihcir  economic  i)rogram 
setins  the  legitimati  and  inevital)Ie  outcome  of  democracy. 
Yet  <me  of  the  keenest  nnionj;;  tlie  ,;')(i:dists,  Hodhertus,  looked 
to  the  permanent  maintenance  of  a  monanliiral  form  of  govern- 
ment;  and  on(>  of  the  greatest  of  philos(i|)hers,  Comte,  who 
sketched  an  ideal  orga:iizatioii  virtually  .sociiilistic,  l)eli<>ved 
that  it  nnist  have  an  autocratic  head. 

Lastly,  socialism  docs  not  ueces.sarily  iih,)Iy  revolution  or 
violence.  Most  well-to-do  j)coi)lc  of  the  half-educated  sort 
a.ssociate  it  with  the  red  (lag  and  a  reign  of  terror :  just  as  most 
of  them  find  no  epithet  of  cnndcmnation  ^o  conclusive  as 
"socialistic."  It  is  true  that  tlie  most  ii.llucntial  socialist 
thinker  of  modern  tiincs,  .Marx,  was  fnmkly  a  revolutionist. 
He  lielievcd  that  the  cxistiu;;;  re;;iiiie  eoiild  not  he  abolished 
without  violence,  and  lii>  preacl.iii";  was  iullainmatory.  But 
other  .**ocialist  thinker^,  no  less  ardent,  look  to  a  peaceful  change  ; 
some  to  a  rapid  one,  even  though  peaceful  ;  some  to  a  slow  evolu- 
tion that  will  1(  ad  to  the  tran.-formed  society  by  gradual  orderly 
steps.  Marx's  own  foUo'vers,  though  loyai  to  his  general  teai  h- 
ing,  are  now  much  less  tnieulent  than  was  Marx  himself.  The 
most  tlioughtful  and  kitnily  disposed  among  tla  socialists-  and 
lirotherly  love,  rather  than  envy,  uiulerljes  the  movement 
look  not  e\«'n  to  an>  hasty  disposvesfion  of  the  present  property- 
holding  classes.  Tliese  might  lie  peii^iotied  in  some  way.  - - 
assured  of  their  pre>erit  income,  or  at  all  events  of  a  vcr\  com- 
fortable itieoiue  fi.r  thein^ehes  during  life  jind  e\t'ii  for  their 
eliildreii.  The  iu'lelinite  roiitihuallce  of  II  set  of  persons  who 
are  (from  llie  sm  i.di-t  pMint  of  \ie\v>  mere  ilrniies  i»  indeed 
iiicon-i  tent  wifli  -u.iah-t  ).i  Im  ijl.-  .  but  the  pence— of  getting 
rid  of  them  !n.i\  be  :i  gr.'iijua'  Mhd  peaceful  one.  entailing  no 
sc  riuii,  siiilVring  bir  ..•  y  iiidi\  idiial. 


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^6       rnOBLKMS  OF  ECONOMIC  OUC,AN..AT,ON 

marily  in  or.lot  f.  atum  u.  i  maohinory  ot  pr.)- 

1,0  ma<U.  ovor.     More  ""^^'f '>■,  "  i^',    „  ,,  -  transterml  from 

i,»  pros,.,,.  ..»n,-r»  m.o  .l-  """''*        ,»iU»av.,  all  ...<■  in*.™- 

„„.,„s..tpr<«l"<"""  ""•"';■    '"''     ^    ;^„  „,  i„,.„.„.ing  .1.0 
,aso  «'l.i.l.  »...'>  'i'™"  ''|";t  l.put  ot'in.U,».ry,  at-  to  go 

p.,.,ao.iv,.,.,,,  o.  '^'"•;:,';;  ,"';"!  o(  ..,»  aa,a„.agc  iB  .0 
to  thocomnuuutyavaNvhoU.  i 

,e  ,ot,  as  now,  by  '-^'^^X'norship  of  property  shall  dis- 
This  aoos  not  n.an  that  a  1  ^^^^^^^  ^^.,  j^^^.^,,,^ 

appear.     U  is  sonu-tnu.s  --       ;  ^    ''^^  „,,,,,,,„  .ncl  prop- 

,  runs  count.,  to  -  ^'-i;;-;  '    ^   !^"^^^^        of  its  toy  to  tho 

avarice  of  tho  a^.-l.      I  h.   ■      <  ^^^^^^^  ^^^^.^  .,^  „.,  ,,  a,s- 

,,„o  bo  such  an  nK.ra.h..aM.     -     '  f,,^,,^,^,,  ,„i  books 

appear.     One  -nay  hav..  one  >  ^^    '^;^,,;„,,  ,,„,.y,  perhaps 
,nai.useh<.ia,..^^essu.ns   ma    -  ^^^  ^^^^^^^^^^,^  ^,,,  , 

.,von  possess  a  h..usc.     *>"     J  ..^,^,.^^,,,.r  income  are  to  he 

'^^  ''""'  ^^'^f  •'  ''7  ll^  Th  oun,.rship  of  dwelling,  t. 
k.pt  ..ut  of  prnate  »''^"''"  •,,,,,.  ,,,nM  not  be  i.-rnntted  ; 
,,,,„  ,,  arentalbyone,u-rsonto.,1lu  ^^^^^^      ^^^ 

for  thi,  ^Pells  iuecuaUty  an<l  'j.';;;^     ,;,..:  ..uU I  possess 
it  -ouia  not  be  out  of  the  ..u-st    n  1  h a t  M  ^^  .^^^^  ^^^^^^ 

.^  ,,,„,  .,  l.is  own,  b.-u«ht  w.th  -  -^   '     ^^,  ,,,  ,,,„,„nttea 
>M-KUU,orahorse.     y.esc    iuns-^^^^^^ 

Uv  inheritance  to  ch.iaren.  >    -         .,.!,„„,,,  ,,  yi.1.1  an 

,„,  Uin.l.  ana  aenhn.s  w.th  ' >   "  ,^;;,^^^.,  „ .  ,,,   ..ontracts   ..f 
incon.e. la    seen.    -7-'  „:':  ,;,„...     The   aetails 

!.-<■  ='»-"•'•  '"•  ''^^^"rt  '  .atraeti..n  f..r  nnuw  people, 

of  a  ...plan  connnun.,>  h:n     ^a^  ^^  ^^^^^^  ^^^^^^^^  „,,,, 

who  an.use  themselves  by  MH...^i    -^  ^^^^,,,  ^,    ^ 

bco. 1  ana  inhentea,  h...    .un  .a     ...  ^^^^^^^^^^^^^^^^ 

vuh.ati.m  if  the  p..:— .-M~h..a  to  n.ak 


I'i 


SOCIALISM 


447 


by  the  state  as  universal  landlord.  So  ono  miRht  speculate 
on  the  extent  to  which  sale  or  hire  of  other  tiurable  consumer's 
goods  might  be  permitted,  —  furniture  or  pianos.  The  things 
essential  in  regard  to  the  ownership  of  projierty  in  tlie  socialist 
state  are  that,  so  far  as  it  is  in  private  hands  at  all,  it  slinll  he 
susceptil)le  of  wide  diffusion,  shall  not  give  rise  to  anything  in 
the  way  of  "funded"  income,  and  shall  not  he  cuiiuilative. 

A  curious  change  has  taken  i)Iace  recently  iti  the  attitude  of 
many  socialists  in  rciard  to  l.nid.  The  unnlrtithig  socialist, 
classing  land  as  oitviously  an  in-trutiniit  of  i)riiihicti(in.  would 
leave  it  all  in  the  conununity's  han<l>  and  would  have  all 
gains  from  it  guarded  for  the  comiminit',.  But  tiicre  is  sign  of 
some  withdrawal  from  this  extnme  po-^inon.  Tii(>  change  is 
due,  esi)ecially  in  Gerinany,  t  >  the  iinpov^i'  ility  <»l'  rousing  even 
an  interest  in  socialism,  not  1o  niention  adherence  to  it.  among 
the  millioi's  of  small  land  proprietor-*,  l^ich  owner  clings 
to  his  few  acres;  and  tlie  -oeiali.  i  -  are  heginuin^  to  con-ider 
whether  there  is  any  reason  why  he  -houl  i  mt  Ix  allowed  to. 
Private  ownership  of  agricultural  lam!,  where  it  i-  in  the  hands  of 
those  who  themselves  till  it.  gives  ri-^e  to  !io  gnat  inequalities 
and  to  no  consideral)li'  unearned  gain-*.  On  the  other  liand, 
concentraticm  not  only  of  ownership  luit  of  nianagemeiit  in  the 
hands  of  the  state  suggests  i)n)l>le!ns  d.iflii'ult  in  proportion  to 
the  difRculty  of  great-scale  farming.  Why  not  let  the  small 
and  moderate  farm  owners  ("pea-^ant  proprietors")  >tay  a-;  ihey 
are?  This  wotdd  mean  qnantiiatively  a  large  l)reai'h  in  the 
strict  socialist  doet'ine.  Init  (|ualitati\ely  nothing  to  lie  Fii'ieh 
regretted.  The  tenure  of  the  fanner-^  might  I'c  that  of  lea-e- 
holders  on  long  term,  with  fixed  rentaN:  and  the  -tate  would 
surely  reserx'e  the  liulit  to  ta!;e  jiov-t-^ion  of  tlie  -ite  if  il  -Imidd 
hccoine  unu<uall\  \  :;lualile  If .;/.  throuuli  the  (!i-.eo\er\  of  mine-). 
rrhan  Land,  tnine-.  inamifaetu'iiig  site'.^.  would  in  n()  i-i-e  iie 
let  out  of  the  conimiinitx's  iKOhN.  Where  I.iilm— eale  agri- 
cultiu'al  operation-  pro- cd  nece-sary.  they  might  !<■  nu'ertahen 
en  -otne  sort  of  coopej  M<  ive  phi'l.  Ih'ie  Imm.  llii  !'  1-  a  tem|)tu- 
tion  to  speculate  on  possible  deta'l-,  and  to  wor'v  out  a  Utopia 


I  ci 


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Micnocorr  reschution  tist  chaut 

(ANSI  ond  ISO  TEST  CHART  No   2l 


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jA 


/APPLIED  IIVHGE 

K,.,  H»st^,       Hp^     ,,..1,  Ufitl'*  :;' 


I  i 


iT   !.' 


■  t  t 


448        PROBLEMS  OF  ECONOMIC  ORGANIZATION 

to  one's  own  satisfaction.  Agricultural  land  presents  problems 
of  its  own  in  existing  society,  and  would  do  so  in  any  socialist 
organization.  Yet  it  may  be  doubted  whetlier  it  would  prove 
possible  to  retain  the  essentials  of  private  property  and  manage- 
ment here,  after  they  had  betn  swept  away  elsewliere. 

DistriI)Ution  in  the  socialist  state  would  l)e  in  one  way  very 
simple.     Wages  would  be  the  only  form  of  income.     Rent  and 
interest    woul.l    disappear.     There    would    doubtless    be    pen- 
sioners and  paupers,  but  no  leisure  class,  -  no  set   of  able- 
bodied  persons  living  in  prosperous  idleness.     Business  profits 
would  exist  only  in  a  strictly  limited  form,  as  wages  of  man- 
agement.    A  carpiiiij;  critic  might  say  that  the  rent  of  land 
could  not  really  be  done  away  with,  since  it  results  necessarily 
from  tlie  inherent  differences  between  natural  resources.     The 
socialists  would  have  to  admit  that  in  this  sen,se  a  rent  —  a 
differential  return  to  se.me  sorts  of  lalu.r  and  effort  —  would  re- 
main.   But  t lie  private  appropriation  of  rent  would  cesuse.    The 
excess  of  return  on  the  b(>tter  sites  would  in  some  form  or 
other  go  to  the  coiainunity. 

Kxchange  wouM  proceed  in  tlie  socialist  state  very  much 
as  it  does  now.  Kx.luuig."  is  part  of  the  muchinery  of  produc- 
tion, and  that  is  n.vt  to  be  disturbed.  There  would  be  ware- 
houses and  shops,  constant  passage  of  goods  from  factory  to 
counter,  d.iily  piircha.-e  of  goo.ls  by  consumers.  All  mid.Ile- 
meu  and  ;dl  shoi)keepers  (virtually  all,  niisht  there  be  excep- 
tions for  s..me  luKksters")  would  b."  "business  men"  in  the 
employ  oi  the  state  and  receivin-  il  wages.  There  woul<l  be 
nioney,  tc..;  presimuibly  nietidli.-  nminy,  because  this  is  clean 
and  duralile.  T' ■■  •' 
something  i  1  e, 

ditional  sorts  of  juoney.  Thii.o.  f,,,-  -mI..  in  tlie  shops  might 
|,(.  liil.eliMJ  witli  tlif  :.ni(.ini:-  nf  1  ibor  wliirh  their  i.n»!u(tion 
had  invoivrl,  all  'ic  l.il-..r,  r.  iiml..  and  near,  din-t  t  and 
Indirect,  llach  pn.iucer  would  r.'ceive  tickets  in  proportion 
to  tlie  amount  of  the  lab.r  he  had  performed,  and  would  use 
these  iWkrlif  as  money.     Tims  t  .icii  person  would  buy  Uie  pioil- 


„.  ,ic\        .  (if  utopi.i:-.  !i;i\e  soiiietinas  picliu'cd 
abor  tiilsi'ls,  (piite  (lilTermt   from  the  tra- 


IT^r*"! 


SOCIALISM 


449 


uct  of  precisely  as  much  labor  as  he  had  himself  iicrfornied. 
Such  an  arrangement  a-sumes  an  apfjortionment  of  wages  on 
a  strict  lalior  or  sai'rilicc  hii-is.  Of  this  aspect  of  (hr  case,  more 
will  he  said  presently  ;  ceilainly  the  determiiiatidu  of  the  prices 
of  floods  would  necessarily  involve  a  principle  of  distribution 
among  the  wage  receivers.  Ihit  lai)or  tickets  and  the  like  fan- 
ciiul  devices  .signify  nothing.  The  es.sential  things  would  l)e 
to  have  stalile  jaiccs  and  stable  money  ineomes. --no  rise  or 
fall  in  the  value  of  money,  no  ])r()bli'ins  of  ai)preciation  or 
depreciatiim,  no  crisis,  no  dislocation  of  the  machinery  of 
exchange.  The  quantity  of  the  circulating  me.liuin  would 
be  adjuste<l  to  tlu'  (luanlifics  of  things  bought  and  sold,  and 
to  a  given  scale  of  jjrices  for  tliein  ;  in  a  manner  analogous  to 
the  present  adjustment  of  the  (piantily  of  subsidiiry  coin  to 
the  occasions  for  its  use.  The  prices  of  things  would  iwt 
adjust  themselves,  as  now,  to  the  (pianlity  of  tlie  circulat- 
ing medium.  This  medium  we  may  .suppose  to  be  bright,  clean 
gold  and  silver  and  copper,  or  any  one  of  them.  Hut  the 
mining  of  these  metals  as  well  as  the  maimfacture  of  the  coins 
would  be  govermuent  operations. 

§  3.  The  crucial  (piestion  of  distribution  —  in  fact,  the  only 
que  t ion  of  distrilnition  in  a  socialist  state  -  would  be  that  of 
wages.  On  what  basis  is  the  pay  of  dilferent  sorts  of  workers 
to  l)e  fixed?  There  are  three  conceivai)le  principles  of  ajipor- 
tionment  :   need,  sn'rilice.  eilicieiicy. 

Di.stribution  accoi  ling  to  n I  would  l)e  the  simplest  of  all; 

for  it  would  mean  that  all  share^l  alike.  It  is  true  that  men's 
cai)acifies  lor  enjoyment  are  dilTeniit.  and  their  needs  corre- 
si)on(lingIy  dilTerent.  Some  are  sensitive  by  nature;  to  such, 
plain  fare  end  elieeriess  surroundings  will  always  be  more  djs. 
tre.ssing  than  to  the  jiverage  man,  and  ampler  means  will  be  a 
greater  source  ..f  pleasure.  .\nd  apart  from  dilTerences  in 
sensitiven«>ss,  he  who  works  with  his  l-rains  doulitless  needs, 
for  full  elhciriiey,  iutter  surroundings  and  gre.iter  variety 
in  occupation  than  the  manual  worker.  Hut  ionvid,.rations 
like  these  coidd  nut   seriously  alTect   the  general  con.secjuenco 

Vlll,.    11         J  u 


\i 


(■  11 


h 


I- it 


450        PROBLEMS  OF  ECONOMIC   ORCANIZATION 

that  distribution  aceonlins  to  needs  would  lead  to  virtual  cqual- 
The  .eennnK  diversities  in  the  keenness  of  des.re  and  enjoy- 
nont  .      due  ehietly  to  habituation.     Those  bred  to  comfort 
Td  re  inenu  nt  are  sensitive  b.eoause  they  have  been  n.ade  so. 
T      :;^        Stat,  eould  .ay  no  attention  to  such  <lif  eren<.es. 
I  d  tL.h  it  nd.ht  logically  pay  attention  to  otiu^ieren^ 
not  due  to  tlu-  ..stablished  habit,  of  far-s<-parated  social  classes, 
to     i  Terences  between  weak  and  ..tron..  between  sens.t.ve 
and  c     rse  persons,  -  the  .liver.ences  frou>  the  rule  o   equahty 
"id  hanlly  be  serious.     Still  less  could  th.,v  be  made  acccpt- 
o  the  rank  and  file.     There  is  no  way  of  measurm«  how 
t  .1  len-uos  :  capacity  f..  pleasure  are  real,  how  far  func- 
fd.     Virtually,  .listributi.>n  on  the  basis  of  need  would  mean 
that  all  should  share  alike.  ,  •  u    f 

Tht  is  perhaps  the  highest  ideal ;   it  conforms  to    he  h.^host 
pitch  of  al  ruisn..     It  has  usually  been  accepted  u.  the  commu- 
'       societies  whieh  have  been  ,n.ler  stron.  reli,u>us  „>^ucnc. 
It'  i,  nH,re  or  less  eonseiously  the  ideal  of  those  who  find     soc.al- 
i.nr  in  the  leaehin«s  of  Christ.     Hut  it  is  not  proposed    at 
;  .t    not    overtlv,  by    .nost    soeialists.     Many  perncms    t  nnk 
,      ;..,hn«  is  an  essential  part  of  socialisn.     Creat  mm«a- 
„f  .xi.1in.  ineMuahties  does  seen,  to  be  un,versally  de- 
manded by  socialists;  and  a  lurking  predileetum  ^r.mjj^ 
.,.,ualitv   is   found    in    the    usual    propaganda,      ^evorthekss 
;,,'„:'t"all  socialists  have  in  nund.  evn  though  vaguely,  some 
differentiation  in  the  individu'd  incomes. 

Til  s,, 1  ,., ipK  ..f  ~.,.rifi.-...  ,„..,>,.  n«a  m,.„  *o,      W 

,,M  in  „n,„„r,in„  ...  tl...  irk..u..-...-  "f  tlu-.r  Ul...r      U  M 

,„    '„.„„.,i.l,„.,»i.nu„r.,„..r.i ,,..,..„n.lt,„.„ 

:;,,a,n,„,.,,■^,,.;H.,^..r:r,..,^■™.^.r,.^a   .O-V     .oro,^^^^^ 

I,,.,,,'. i„i.,.r ^ «' ."'!'■'■ '" ""'• '"»" "" '" """'":   , 

5      .  .;  ...   ..I-   L.iwjr   \n  them.     .Marx   nati   a 

iim  from    iiK-   iii.  r.rr.iir.Ui-.'ii    >n    >> 

doctrine  of  this  sort.     Vah.e  was  said  to  be  so  much  embod.ed 


SOCIALISM 


451 


labor,  a  kind  of  labor-jelly ;  value  being  regarded  not  as  a  mere 
matter-of-fact  phenomenon  in  excliunge,  but  us  a  something  in- 
herent in  economic  goods.  Quantity  of  lal)or  —  sucJi  cjuantity 
aa  is  ordinarily  and  reasonably  necessary  —  settles  this  iniier- 
eut  value.  The  doctrine  really  has  in  mind  the  ))rinciple  tiiat 
goods  ought  to  be  exchanged  in  proportion  to  the  lalior  needed 
for  producing  them;  and  this,  again,  means  tiiat  all  laljor  oiujht 
to  be  remunerated  on  th(!  same  basis;  hence  that  dif- 
ferences in  (luration  and  disagreeablcnessof  labor  should  alone  be 
the  occasion  for  differences  in  its  remuneration.  In  such  a 
mechanism  of  exchange  as  was  referred  to  in  the  i)receding 
section  (the  use  of  labor  tickets),  goods  would  lie  valued  ac- 
cording to  the  quantity  of  "socially-necessary"  labor  involved 
in  their  production,  and  sold  on  that  basis. 

In  a  scheme  for  an  ideal  society,  which  was  much  discussed 
some  years  ago,'  it  was  projjosed  that  all  laborers  should  l.e 
paif'  at  the  same  rate,  but  that  thi«  hours  of  work  in  different 
occupations  shoidd  be  adjuste(l  in  such  way  as  (o  .  .adc  sacri- 
fice or  irksomenes.s  the -aiiic  for  ail.  bet  the  i)l('asaMt  soi'tsof  laljor 
have  long  hours,  -those  of  suni'rintendence  and  government, 
for  example,  since  "bossini;"  seems  always  to  be  agreeable.  Let 
the  dirty  and  heavy  labor,  such  as  mining  and  ditch  digging, 
have  short  hours.  Readjust  the  hours  if  it  should  appear  from 
the  deliclency  or  excess  of  api)licalions  for  the  several  emploj'- 
nients,  that  this  han(licai)j)ing  liy  the  length  of  working  time 
was  not  accurate.  The  projxisal  is  no  moi-e  to  be  taki'ii  as 
an  essential  part  of  sociali>in  than  any  oilier  detail  in  the 
sketches  of  Utopia.  Hut  it  iiriim-  out  clearly  the  principle  of 
equality  of  sacrifice:  not  pay  at  the  same  r.ite  for  all,  l)ut  |)ay 
at  such  rates  as  to  bring  the  same  sacrifice  for  all. 

E(|uality  of  sacrilice  rests  on  an  ileid  of  libert>'.  Sacrifice, 
hardship,  irksomeness,  an>  subjective  fee  111 ui^.  Th:  y  can  i>e 
measured  only  by  gi\ing  nien  choice  of  what  they  shall  do, 
ami  judging  of  their  feelings  .'iccording  to  tli.it  choice,  'i'acitly 
the  a.ssumption  is  that  eipialily  exists  in  (lie  capacities  of  men, 


PROBLEMS  OF  ECONOMIC   ORGANIZATION 


an.l  that  all  can  turn  at  will  to  the  several  sorts  of  abor  or 
at  least,  enough  persons  can  turn  freely  to  make  ,t  perfee  y 
feasible  to  get  a  full  quota  for  each  sort.  I  we  assume  that 
all  n.en  have  th.-  sanu-  inborn  abilities,  and  that  there  are 
no  obstacles  to  free  choice  of  occupation  fro.n  custon,  expense 
of  preparation,  or  social  environment,  precisely  tins  kmd  of 
adjUn^enl  of  wa,es  w<.uM  ensue  in  an  indivuluahst.e  society. 
The  onlv  .litTerences  would  b,.  those  that  served  to  offset  the 
virving  disagreeableness  of  dilTerent  sorts  of  labor.' 

\Vrv  dissimilar  is  the  third  principle,  that  of  n>muneration 
according  to  efliciency.  This  says  that  each  man  shall  be 
rewarded  in  acc.ml  with  his  contribution  to  the  sonal  mcome. 
The  able,  strong,  and  alert  shall  get  tnore,  the  dull  anu  weak  less 
The  outconu.  would  be  in  n.any  cases  -luite  the  o,.pos.te  o  hat 
froni  the  principle  of  n.-eds,  under  which  the  strong  are  hkely 
to  get  less  the  weak  to  get  more. 

Hennmer.tion  according  to  elli.'iency  seems  to  most  persons 
iu<t      W.>   think   it    right    that    he   whose   work   accomplishes 
more  ^hall  get  more  pay.  that  an  c-fiicient  man  shall  be  paid  at 
a  higher  rate  th.n  an  ineflicient  one.     Th<-  principh'  assumes, 
too  -though  this  assumi.tion  often  is  n-t  consciously  ma.le  i.y 
those  wlu.  reason  on  it,  -    that  eflicacy  is  not   the  same  for  all, 
some  having  greater  capa.'ity  than  others.     Remuneration  ac- 
cording to  sa.ritice  tacitly  assumes  perf.-ct  liberty  of  choice; 
rennniev.tion   a.rording  to  efhciency  tacitly  assumes  that  not 
all  men  can  do  all  things,  and  that  not  all  are  equally  sedulous^ 
The  r..adv  ac.M.ptance  of  .ili.-ii'ncy  as  a  just  basis  of  rewanl 
is  the  result"of  it.  being  the  basis  on  which  reward  is  now  in  fact 
adjust.Ml.     in   thr  main,   men   are   paid  for  labor  in   .'Xisting 
sociHv  according  to  wl.Mt   tlu'V  cntribut.-  to  sor,..ly;  or    to 
,„.  .„;„,,,,,    ;H.onling  to  the  marginal  contribution  ..f  th.ir 
.ort    .,f    labor.     On   thi-   nmtt-r.   as  on  otlu.rs,   n.o.t    liersons 
.,,,...,1    as  jusi    th.Mt    towhi.'h   thry  are  habituatcl.     'i  he  real 
gro.ind  on  which  rmumeration  a.ronling  to  eHiciency  is  to  i.e 
i.j^.jf;,.,}  :,  ,u,.  nWWUivmn  our.     It  spurs  ev.'ry  man  to  contriinit. 

^  M'o.np.p.  «1...  H  s.M  nf  ,|ifT,r...,r..  of  «,,,...  »! M'-k  IV.  Ch.ptvr  17 


SOCIALISM 


453 


his  utmost.  The  argument  for  it  is  the  argument  from  the 
bribe.  On  the  most  altruistic  ethical  standard,  there  is  no 
reason  why  the  strong  niai.  should  get  more  than  the  weak; 
nay,  rather,  there  is  ground  for  his  sharing  freely  with  the  weak. 
The  reason  why  he  should  get  more  is  simply  that,  unless  he  is 
so  rewarded,  lie  is  not  likely  to  exert  his  strength.     In  the  entl, 

—  this  is  the  essence  of  the  argument,  —  all  men  are  better  off 
when  each  is  induced  to  contribute  his  utmost.  If,  indeed,  all 
men  are  born  with  equal  gifts  and  have  equal  opportunities, 
the  final  result  will  lie  the  same  as  under  the  second  principle,  — 
all  will  be  paid  in  ])roportion  to  sacrifice.  Every  one  will  be 
spurred  to  turn  his  lal)or  to  the  occupations  which  are  highly 
rewarded  ;  in  these  numbers  will  increase,  and  reward  then  will 
iliminish  ;  ultinuitdy,  only  those  differences  will  riMiiain  which 
corresijond  to  differences  in  irksomeness.  But  if  there  are  in- 
born ditferences  in  capacity,  some  men  will  always  g(>t  more 
than  others,  even  though  opportunities  be  the  same  for  all.  The 
resulting  inequalities  nuist  be  accepted  as  necessary  in  order 
to  induce  every  man  to  exercise  his  own  faculties,  and  to  exert 
himself  in  accpiiring  i)y  training  and  assiduity  those  faculties 
which  bring  about   high  efficiency  and  high  reward. 

Not  many  advocates  of  socialism  have  expressed  themselves 
cl(>urly  on  this  fundamental  question  :  what  is  the  just  or 
idc.il  apportionment  of  reward  for  lat)or.  Often  they  think 
loosely  and  fail  to  discriminate  among  the  jiossibilities.  The 
trend  anumgthem,  on  the  whole,  is  toward  the  second  principle, 

—  that  of  remuneration  according  to  sacrifice.  Strong  as  is  the 
underlying  protest  against  inequality,  few  would  accept  squarely 
and  without  qualification  the  first  principle,  -that  of  equality. 
Vvw,  again,  would  be  willing  ti)  accept  all  the  coiisetjuences 
of  the  third  i)rinciple.  Often  they  ignore  inljorn  differences, 
liclieviiig  ill  the  pcrrcctiliility  nf  incii ;  jiiid  in  any  case  the  great 
differences  which  tliiw  fri'tn  ri'Ward  accnriliiig  to  ('(licieiicy 
would  not  1)1"  in  accord  with  their  gi-neral  striving  fur  ("(piality. 
'rhiiugh  only  half  conscious  of  doing  so,  the  socialists  are  npt  to 
propose  or  imply  some  sort  of  compromise:    some  iueciuality, 


.^'^> 


l:'1 


454        PROBLEMS  OF  ECONOMIC   ORGANIZATION 

but  not  very  much ;  some  adjustment  to  efficiency,  but  not 
!o  nS  as  to  lead  to  marked  inequality.  Of  the  d.fficult.eB 
and  probU'ms  which  must  emerge,  more  will  be  said  m  the  next 

''Tf  ^Before  further  consideration  of  the  meaning  and  possi- 
bilities of  socialism,  it  may  be  pointed  out  wherein  soc.ahsm 
diiTers  from  public  ownership,  and  from  the  humanitarian  Icgis- 
hvtion  which  is  c'ton  described  as  "socialistic." 

Public  owne.  =^  o  does  not  mean  sociahsui  as  to  distribution 
that  is    as  to  th.  thing  essential.     The  state,  in  owning  and 
operating  railways,  proceeds  in  much  the  same  way  as  a  private 
companv  does.     It  pays  high  salaries  to  the  managers  at  the 
.,e,d    i;ss  salaries  to  subordinate  officials,  ordinary  wages  .o 
mechanics  and  unskilled  laborers,  -  throughout  on  a  scale  like 
that   prevailing  in  the  world  outsi.le.     No  doubt,  there  is  a 
tcmlencv  to  mitigate  existing  inequalities.     The  higher  offinals 
often  get  less  than  persons  of  the  same  capacity  would  get  in 
nrivat.>  cmplovnu-ut ;  though  this,  again,  has  not  infrequently 
the  result  that  the  officials  are  not  in  fact,  as  they  are  supposed 
to  be  and  ought  to  be,  of  the  same  capacity  as  those  in  private 
,,,„plov      In  democratic  countries  the  mechanics  and  unskilled 
l,bor<'rs  are  ..tten  paid  more  tlian  they  would  be  paid  by  private 
emplovcrs.     Hut  these  are  no  more  than  differences  in  degree, 
und  rest  on  no  cKarly  conceived  principle.     In  the  mam,  the 
existing  diiTrrences  of  wages  are  accepted  in  public  business 

management.  .  ,    ^,     ,  •     „« 

\gaiu.  public  o^s■nerslup  does  not  do  away  with  the  leisure 
dnss  \Vheii  the  state  turns  to  railway  ONvnership  and  opera- 
tion it  iH.vs  ..ut  the  private  owners,  who  thereafter  simply 
r,.,Tive  tluir  inrome  fn.m  otluT  investments.  Such  purchase 
often  results  si.uplv  in  an  exchange  of  public  securities  for 
,„,-porate  serurities.  The  sa.ue  c,mse(,uence  ensues  when  the 
st.f  s..ts  out  to  ..wn  great  works  fnmi  the  beginmng  (as 
,h,.   Australian   clonics  did   in  building  tlieir  railways).     It 

,]„,,.  bornnvs  th.  funds,  and  pays  interest  to  the  creditors.     The 

loisure  class  still  gets  its  income. 


SOCIALISM 


455 


No  doubt  it  is  true  that  public  ownership  means  an  endeavor 
to  mitigate  inequalities  in  distribution.  ;\Ioi!opoly  returns  are 
to  be  done  away  with,  or  (what  comes  to  the  s;inie  thins)  are  to 
be  appropriated  by  the  community.  Rut  this  is  by  no  means 
inconsistent  with  the  conduct  of  the  great  mass  of  industrial 
operations  by  private  hands,  with  all  the  resultini;  ])h(>nomena 
of  private  property,  —  inequalities  in  earnings,  savings  and 
accumulation,  investment,  a  leisure  class,  a  stratified  society. 
There  is  a  vast  difference  between  the  miligation  of  present 
inequalities  and  the  complete  removal  of  the  causes  which  lead 
to  the  inequality  characteristic  of  the  existing  regini(>. 

Similarly,  the  whole  series  of  social  reforms,  from  the  regu- 
lation of  the  large-scale  industries  to  factory  legislation  and 
oUl-age  pensions,  has  a  limited  range.  It  looks  also  to  the 
mitigation  of  inequalities  ami  of  the  results  of  inequalities. 
All  these  measures  serve  to  determine  the  plane  on  which  com- 
petition shall  proceed,  but  do  not  put  an  end  to  competitive 
bargaining  or  competitive  returns.  Factory  legislation,  for  ex- 
ample, workmen's  insurance,  even  minimum  wages,  fix  the 
limits  within  which  the  bargains  shall  be  adjusted,  but  they 
do  not  attempt  to  settle  the  bargainings.  The  case  would  rje 
different  if  the  state  were  to  go  to  tlie  \xm\t  of  actually  fixing 
wages,  say  by  a  method  of  compulsory  arbitration.  This,  as 
has  been  said  ulreaily,  involves  a  prin(ii)le  more  far-reaching 
than  the  other  forms  of  labor  legislation;  since,  carried  to  its 
logical  conclusion,  it  calls  on  the  .state,  by  fixing  wages  onc(> 
for  all,  to  settle  not  only  wages,  but  the  other  elements  of  dis- 
tribution as  well.' 

It  may  be  said,  of  course,  that  all  these  things  —  pulijic 
ownership,  regulation  of  industry,  iabur  legislal ion  -  rest  (in 
the  .same  principles  and  ideals  as  socialism,  tliat  they  look  in 
the  same  direction,  and  that  they  will  lead  ultiinafrly  to  a 
Bocialistic  state.  They  do  rest  on  the  same  or  similar  impulses, 
—  a  wider  altruism,  a  growing  impatience  with  great  ine(|uali- 
tic*.  So  far  they  look  in  the  r-ume  dinH'tis>ii.  But  their  ulti- 
'  Seo  ubovc,  liook  VI,  CliiiptiT  ."i7,  §  li. 


(i 


li 


'        I 


A    1 


456        PUOBLEMS   OF  ECONOMIC   ORGANIZATION 

mate  outcome  is  by  no  means  necessarily  the  sa.no.  That  out- 
come  may  be  a  purified  and  better  soc-i.ty,  still  orsan.mi  on  a 
basis  of  property  and  of  free  bar.aiui,,.?.  Oddly  enough,  the 
advocates  of  socialism  and  its  extreme  opponents  umte  in  a 
vague  and  alU>ml)racing  conception  of  the  movement,^  the 
former  bv  calling  every  step  for  social  reform  "socialistic,  and 
the  latter  by  stigmatizing  with  the  same  name  every  measure 
to  which  they  object.  Little  is  gained  by  such  discussion 
toward  understanding  the  problems  really  involved  in  the 
scheme  of  a  radical  reorganization  of  society. 

&  -)    Some  current  obji'ctious  to  socialism  are  easily  met. 
It  is  said  that  the  scheme  is  too  huge,  the  diffi.-ulty  of  orgam- 
zation  insuperable,  the  actual  operation  sure  to  break  down  be- 
cause of  the  extent  and  complexity  of  the  industrial  problems. 
But  the  large-scale  enterprises  of  modern  times  go  far  to  dispose 
of  the  objection.     The  possibilities  of  organization  have  been 
proved  to  be  immense.     When  we  s(>e  how  railways  and  indus- 
trial enterprises  are  succ-essfuUy  conducted  on  a  vast  scale 
under  unified  management,  we  cannot  say  that  ^he  mere  diffi- 
culties of   management   and   op.>ration  would  be   insuperable 
under  socialism.     In  fact,  many  of  the  problems  of  production, 
exchange,  transportation,  would  be  simplified.     Fluctuations 
and  uncertainties  would  largely  disappear.     Only  the  ineyitab  e 
irregularities  of  the  seasons  would  have  to  be  reckoned  with. 
Overproduction  of  any  one  commodity  could  be  easily  set  riglit 
bv  simply  waiting  until  the  existing  supply  was  disposed  of. 
'I'here  coul.l  b.-  no  ruinous  und.'rbi.lding  by  frantic  competitors, 
.ach  rushing  to  market  in  the  fc-ar  that  the  other  would  under- 
sell     It  is  true  that  the  syst.Mn,  order,  regularity,  which  the 
socialists  may  fairly  claim  as  belonging  to  their  society,  may 
mean  also  stagnation,  -  the  cessation  not  only  of  change,  but 
of  progress.     Rut  this  a.nounts  to  saying  m)t  that  admimst ra- 
tion and  management  are  impracticable,  but  that  they  would 
not  be  as  progressive  as  they  should  be. 

Again,  there  wout.l  seem  to  !u>  m)  insuperable  difficulties  m 
the  wav  of  valuiu";  commodities  in  the  socialist  state.     The 


^^, 


hm 


SOCIALISM 


457 


pricing  of  the  Roods  on  salo  would  involve,  to  be  sure,  not  only 
accurate  lujokkecpinp;  (of  the  cost-account  sort),  but  the  deter- 
mination of  the  wages  of  the  laborers  engaged  in  the  several 
branches  of  production.  In  other  words,  it  would  presuppose 
a  sclieine  of  distrii)ution  among  the  laborers.  This,  as  already 
intimated,  aiul  as  will  presently  l)e  further  shown,  is  a  crucial 
matter.  But  supposing  the  principle  or  standard  to  be  settled, 
the  next  step,  that  of  fixing  a  price  for  the  goods  produced  by 
different  kinds  of  labor  or  different  combinations  of  labor,  is  not 
more  troublesome  than  it  is  now  for  a  great  manufacturing 
establishment.  Often  enough,  in  existing  industrial  organiza- 
tion, figures  of  co.-it  and  price  can  be  reached  only  with  ap- 
proximation to  accuracy ;  but  a  reasonable  approximation 
suffices. 

Nor  would  "the  accumulation  of  capital"  be  a  matter  of 
serious  difficulty.  It  would  simply  proceed  by  a  different 
process  from  that  of  jiresi'nt  society ;  not  by  savings  and  in- 
vestments of  individuals,  but  by  the  deliberate  setting  aside 
of  part  of  the  community's  resources  for  n(nv  construction. 
As  at  present,  it  would  depend  on  the  existence  of  a  surplus, 
an  excess  o\-er  what  may  l)e  used  for  satisfying  current  wants. 
In  this  sense,  there  would  be  "abstinence"  and  saving  in  the 
socialistic  state.  But  it  would  be  "abstinence"  not  by  a 
comparatively  few,  but  by  all.  Each  and  ev<Ty  individual 
would  have  his  present  income  curtailed  somewhat  in  f»rd(>r 
that  provision  might  be  made  for  adding  to  th<  itnt  o  '.o 
community.  Suec«'ss  in  making  such  a  provision  w.iuld 
of  course,  on  the  posse.ssiiin  of  a  fairly  higli  le\rl  of  n, 
that  is,  on  an  existiu';-  high  productivity  of  labor.     •  a 

sufficient  present  income,  there  would  be  no  difficult ^ 
ting  aside  something  for  addition  lo  the  eonunuuiiy' 
The  serious  proMeni  would  b(>  whether  there  would  be  (•(•■ 
progress  and  inveuti(»n,  not  wh(>ther  there  woidd  be  the  ]• 
for  carrying  out  inventors'  projects. 

It  is  tifttii  :;altl  thai  socia'isin  would  lie  (lestriictivc  of  iii- 
But  for  the  great  majority  of  mankind,  freedom  might  l«    rs. 


IKl 

le  ; 


'   ,1 


i 


^<J<  i  » 


458        PROBLEMS  OF  ECONOMIC   ORGANIZATION 

less  than  it  now  is.  Most  men  now  find  the  nature  of  their 
occupations  fixed  for  them.  Their  daily  round  is  settled 
virtually  without  choice  of  their  own.  Change  from  one  occu- 
pation to  another  of  a  similar  grade  would  seem  to  be  no  more 
difficult  of  arrangement  in  the  socialist  state  than  m  our  own. 
If  the  dreams  of  the  socialists  come  true,  there  would  be  shorter 
lH,ur<  for  all,  and  more  leisure.  But  greater  freedom  m  this 
.ouM.  is  not  unattainable  in  existing  society.  If  the  dreams  of 
the  non-socialists  come  true,  toil  will  be  less  all-absorbing, 
free  time  more  plentiful.  For  the  mass  of  men,  it  is  not  clear 
that  on  the  score  of  Uberty  there  is  a  preponderance  of  gam 

under  either  system. 

Whether  persons  of  unusual  gifts  would  have  greater  free- 
dom, is  again  not  easy  to  say.  Unless  real  freedom  could  be 
secured  for  tiuni,  real  opportunity  for  development,  no  dreams 
of  the  socialists  could  come  true.  A  stiff  and  bureaucratic 
socialism  -  and  danger  there  is  of  crass  bureaucracy  -  would 
stitte  individuality.  Tins  is  a  matter  of  the  kindling  of  am- 
bition and  enmlation,  the  selection  of  leaders,  the  maintenance 
of  progress,  -difficulties  which,  as  will  presently  appear,  are  the 

crucial  ones. 

Ohviouslv,  there  would  be  loss  of  freedom  for  many  who  now 
are  privileged.  The  commonplace  persons  of  the  well-to-do 
elass  with  an  "independence"  of  their  own  to  fall  back  on, 
v.-ould  have  less  choice  of  occupation,  less  chance  for  experi- 
ment less  fr  'om  as  to  their  mode  of  life.  The  abolition 
of  Xhv  regime  of  privilege  would  necessarily  destroy  some 
advantages  of  the  privileged.  Thr.t  elegant  freedom  now 
enjoyed  by  th(>  iiossessors  of  large  funded  incomes  would  dis- 
appear comi)lt'tely. 

We  are  so  luibituat-nl  to  th •;■  ways  and  traditions  of  present 
society  that  we  cannot  easily  imagine  what  would  be  those  of  a 
society  essentially  different.  There  is  no  such  t.nng  as  un- 
restrained fiHT.lom.  Mm  live  now  within  limits  set  not  only 
hv  the  need  ..f  e.rniu.^  the.r  hving,  but  by  law,  by  custom,  by 
the  envirounieut.     In  the  socialist  state  there  would  be  neces- 


!• .  t 


»      _ 


SOCIALISM 


45!) 


sarily  restrictions  also,  in  some  rosp(>cts  simihir,  in  some  re- 
spects diff.Trnt.  A  l)ureaucratic  and  somi-niilitary  socialism 
is  conceivable  which  would  crush  individuality.  A  rosulatcd 
and  refined  system  of  private  property  is  conceivable,  with 
unfettered  freedom  of  opportunity,  in  which  there  woulil  be  a 
completeness  of  liberty  hardly  to  l)e  attained  in  any  socialist 
state.  If  we  conceive  the  sumimon  bonum  to  be  the  full  de- 
velopment of  personality,  we  must  hesitate  before  sayins:^ 
which  sort  of  social  organization  gives  the  promise  of  the  best 
happiness. 


''1 


w 


m 


I  I 


iK    «' 


il.    1: 


CHAPTER  65 

Socialism,  continued 

§  1.   Let  us  now  consider  somo  .lifficulties  in  the  way  of  so- 
cialistic  organization  which  are  more  serious. 

T  Igh  sociaHsm  w<,uia  not  destroy  the  h<,me  or  the  family 
it  Luld  bring  domestic  relations  very  different  from  ho^wi  h 
which  we  are  familiar.  The  socialists  are  just.fie.  m  scoffing 
I  the  bugbear  of  phalansteries  and  barracks,  wUh  sapi>osed 
g  g  nic  nurseries,  --  .nasi  incubators,  in  which  c  u  dren  would 
b' reared  wi.ho.      parental  love  or  guidance,     ^.i  mev.t.  ly 

tuo  family  would  be  in  an  -•••--7%--:>'.  '  "^[^X  rZ 
that  of  the  present,  its  influence  nm.^h  dunuushe.l,  th     rcla 
tilnl  of  parents  to  children  greatly  nKulilied,  the  problem  of 
Donulation  moi.  ominous.  i  ,  i„ 

'    klucation  and  training,  it  woul.l  s.-em,  nmst  be  compl  My 
„,Hl(.r    state   control.     The   training  of   the   young   and   the.r 
..paration  for  ..  career  in  life  could  not  b..  left  to  the  discretion 
,f  ',,,„ts.     At  the  least,  it  would  be  subje.-t  t,.  mmu  e  piibl  c 
control.     And,  <.n  the  other  hand,  the  resp<.usibility  of  parents 
for  the  futur<«  of  tlu>ir  .•hildren  would  virtually  cease.     Lvery 
,,nld  would  not  only  be  taught   the  fun.lan.enta    things,  bu 
properlv  fed  and  crcd  for.     Its  edncatu.n  would  be  pushed  as 
ar  as'the   c<.nst,tuted   authorities   might    deem   worth   while 
An.l  a  necessary  con.Hary  would  se<.n.  to  be  tha,  every  child 
Khould  be  assured  em,>l..,vment ,  and  a.  g..od  an  upp..rtumty  for 
,ariiing  an  income  as  any  oti.er  child  of  liUe  pn.nnse. 

Malthusianism  was  held  u,.  bv  the  ,-conomists  ..f  a  gen.'ra- 
tion  ago  as  an  insuperable  nbstude  to  any  collect.v.st  scheme. 
The  socialists  have  conunon.y  p..oh-p<>..lu-.l  it.  Hut  .t  is  none 
„...  1.,..  ...rions.  The  Mm.  in  th.>  birth  rat,«  and  th,.  lessen- 
in,  prc^^nre  of  popuhtiu.,  uhich  appear  in  the  h.«hly  c.v,i..eo 


SOCIALISM 


461 


countries,  are  the  consequences  of  imlividualism  and  the  regime 
of  property.'  These  tendencies,  salutary  on  the  whole,  rest  on 
stirred  social  anilntion  more  than  on  any  other  force.  They 
are  due  to  the  present  position  of  the  family,  to  liope  for  the 
future  of  one's  children,  to  the  desire  to  rise  in  the  social  scale. 
It  has  been  shrewdly  saicP  that  the  natural  man  has  only  two 
primal  j)u.ssions  —  to  get  and  to  beget.  The  desire  to  beget 
is  now  held  in  check  by  the  desire  to  get.  That  removed, 
wliat  would  check  multiplication? 

This  is  a  thorny  subject,  not  often  entered  on  coolly  and 
openly  either  liy  socialists  or  their  opponents.     Man  the  ani- 
ii.al  tends  to  multiply  like  other  animals,  and  when  he  does  so 
encounters  essenMally  the  same  obstacles  as  otlier  animals. 
Regulation  and  relaxation  of  flie  tendency  to  increa.se  are  im- 
perative, yet    are   fraught   with   dangers,  —  physiological   and 
moral  as  well  as  social.     These  dungers  and  evils  are  ominous 
in  existing  society.     So  fundamentally  different    would   be  a 
collectivist  organization  that  it  would  l)e  rash  to  predict  just 
what  dangers  could  be  avoided  in  it,  just  what  would  be  in- 
evitable.    Yet    I    cannot   but    believe   that    some   coarse   and 
mechanical  regulation  of  the  sexual  relations  wouM  have  to  be 
resorted  to;    a  formal  retention,  no  doubt,  of  monogamy  and 
of  family  obligations,  y<'t   without   those  concomitants  which 
now  make  tlie  family  a  s.ifegiiard  for  pu!)lic  and  private  w^'ll- 
being.     The  sexual   relations  are  made  j)ure  and  sw(>et,   and 
safe  for  society,  not  only  by  the  marriage  tie  and  the  lawful- 
ness of  monogamy,  but  by  care  and  responsil)ility  for  the  olT- 
.spring.     Without  that  responsibility  and  all  the  ambition  :ni>l 
affection  that  go  with  it,  the  animal  instinct  bo(h's  vast  dan- 
gers.    The  domestic  relations  which  now  enshrine  it  an'  highly 
unselfish  within  the  narrow  range  of  the  family,   iml    highly 
selfish  as  regards  tlie  rest  of  the  world,      in  their  essence,  they 
are   individualistic;    and    it    is   their   very    individu.dism   .mil 
selfishness  which  cause  them  to  work  to  social  advantage.     It 


'i\ 


U 


I  .S,.,   M("ik  v.  riiii|i»i>p  .V3. 

'  H.v  Dr.  t»Hl(-r.  Snimi  tinit  Imtthirlnlilu.  i>    Hi 


3v^: 


462       PROBLEMS  OF  ECONOMIC  ORGANIZATION 

is  hardly  conceivable  that  any  new  development  of  public 
opinLn  unv  new  regulation  by  public  authority,  any  decreeing 
orciuilos;n..>no.an,ic  unions,  should  replace  the  rest  ramts. 
the  .vnctions.  the  nu.tives  for  both  industry  and  economy, 
!!;,eh  the  indivuluahstic  famUy  gathers  about  .t  under  con- 
ditions of  free  opportunity  and  of  hop.-  for  the  future. 

S2  The  maintenance  of  vigor,  efhc.ency,  and  progress 
presents  problen.  no  less  troul>lesonu.,  both  as  to  the  rank 
•ind  file    and  as  to  the  leaders. 

For  , '1,0  rank  a„.l  filo,  »«.ne  a,uo„K  .h.  .lifficu  .,«  m  th 
exM.K  ..r.l.r  „f  .lu.,B»  wouU.  m.l,.o,l  .lisap,«.ar     TLorc  would 

:„■„..„.,..«.,>,  ..>  ■■..,«;<,  work"  or  ..,.»«•  ""i"7;;»™  ; 

Th,.  t..ar  ..(  ,„„.n,ploynu.ot,  whirl,  is  tlu;  '"""V"""' "' '^".^^^ 

„„„i„„  ,0  .,0,..  ...1,  >*-,;i:;:r;:: ::"  ri::: 
:r;;" ::::;:;- -""."■• '..vw---- 

"       ,  „l«..wl,..r..;   if  i...m..,lial,.  otili,,auou  ,,roV..,l  not  t..a,„l.lc 
tl',!'  10-  or  ...T,yn«  .inrin.  .l,-  .ran,i,i.,n.     Ti.cro  would 
1„.  no  indiiniuvut  lor  makiiis  anv  joU  last. 

B„  „„.r..  wouM  also  !..■  uo  ri^M  of  ,lis,.l,arKr  ■   none   cor- 

,,,:       „a,  ,..,uH  I..-  .-r.-is..d  will,  ..IT-.-I.  least  o  all  m  .  demo- 

■..on,nn,ni,y.     TrinUnals,  .ramps,    ,„.'or-d,.-v.olls    w-ould 

,  ,,.,.,1  1 mpara.iv,.ly  oasy  to  .1...!  w,.l,       IVy  could  te 

i,    ,.,,r.,l    kop.  tron,  l.r linS.  and.  if  l..yon.l  rodnnpfon  got 

f,,    way  pan.l.-ly.     Th.  serious  prohlnns  would  Ix, 
™  .,.,,,1  l,v  th,.  rank  an.l  til,.  "'  '"■•".  "■"  I""''''"*  "»* 

ff  ,i„.  1,7,    irok..?    N„lhr,.at  ,.f,lis,'harB,.,.">lld»™ll. 

ti.h      Th,.  ,:..,n„un,.y  tons,   .l.al  with  th,.  ,n,.n  on,.,,  for  all 

rither  as  \vnrk.T<  or  a<  deliiKiucnt^. 

,  leed  lab..r  were  u-t  ordinarily  irksome,  and  >f  work  we  e 

,,::!:  ...leerfuiiv  and  .>onta, u.y,  ^11.  ..U.es  w.   d 

Iris.     Wen.,urnhereU..n.eof_thev.V,^.^^^^^^^ 
^vhi.•h  we  be«a>.  •     It  may  i-  i u.v  mat  a  im-  -y--  ■    -   ^- 


SOCIALISM 


463 


demoralizing  and  unhappy ;  and  it  is  certainly  true  that  a  life 
of  inactivity  is  miserable.  But  steady  labor  at  monotonoud 
taaks,  such  as  is  essential  for  the  productiveness  of  industry, 
is  evaded  by  almost  all  men.  In  an  ideal  state,  we  should 
wish  to  have  good  work,  good  i)ay,  gooil  leisure ;  but  will 
men  do  good  work  if  assured  in  any  case  of  good  pay  and  good 
leisure?  Spontaneity  in  hi\)ot  seems  inconsistent  with  large- 
scale  operations.  It  is  found  only  when  men  work  for  them- 
selves, or  in  groups  when;  each  works  for  all  under  the  eyes  of 
all.  The  larger  the  group,  an<l  the  more  remote  the  connectioii 
between  each  individual's  labor  and  the  final  output,  the  less 
likely  is  it  that  men  will  work  faithfully  without  some  ma- 
chinery of  <'nforc(>ment  and  penalty.  The  pr()l)lem  is  similar 
to  that  universally  encountered  when  ta.xation  is  resorted  to 
for  defraying  publico  exp«>nses.'  The  services  being  freely  sup- 
plied to  all  through  taxation,  —  there  being  no  precise  quid  pro 
quo,  —  all  grudge  the  taxes  that  must  be  paid  in  order  that 
government  shall  be  al)l('  to  sup])ly  the  services.  Hence  the 
mien  of  the  taxgatherer  is  inevitably  harsh.  In  a  socialist 
state  all  ostensible  workers  would  be  assured  once  for  all  of 
getting  their  share  —  on  whatever  principle  aiijusted  —  of  the 
results  of  collective  activity:  and  hence  some  sort  of  pres.sure 
would  have  to  b(>  exercised  in  order  to  imluce  vigorous  ami 
effective  work.  Must  not  the  socialist  taskmaster  be  harsh, 
like  our  pre.nent  taxgatherer?  .\nd  what  penalties  shall  he 
apply  ? 

We  may  conceive,  indeed,  tliat  a  socialist  state  shall  under- 
take to  adjust  distribution  on  a  basis  .f  efRciency,  and  thus 
shall  attempt  to  apply  a  s]iur  to  vigor  by  differences  in  pay 
proportioned  to  zeal  ms  well  as  to  capacity;  frankly  aci  eptiiifi; 
the  wide  range  of  (lilfcn'nces  which  must  result  from  that  prin- 
ciple. The  gr<'atest  variations  from  the  average  or  ordinary 
rate  would  then  appe.ir,  of  course,  for  the  (Mm>  of  the  com- 
paratively few  havii\g  gn-at  gifts,  for  tlie  irre;it  leaders  and 
administrHtors,  the  turn  of  science  !in(l  the  inventors,  —  and 
I  ^•,<l,^<■.<T<•  li.Hik  Viil,  <  h.-iptiT  fut,  i  1. 


i 


■.I  i 

'1!    ( 


I       , 


?. 


»« 


464        PROBLEMS  OF  ECONOMIC   ORGANIZATION 

suroly  the  poets  and  artists  also.  But  differericos  of  the  same 
so.  ,  though  less  in  degree,  would  appear  iu  the  rauk  aud  file  also. 
The  interest  of  every  private  employer  now  leails  him  to  make 
distinctions  on  this  basis.  He  selects  for  well-pai<l  positions 
the  steadv,  zealous,  and  intelligent,  and  relegates  the  dull  and 
indifferent  to  tasks  that  can  ho  mechanically  measured, -or 
he  dis.;,  .•t.s  them  once  for  all.  Is  it  to  be  supposed  that 
public  ofl.cials,  having  no  stimulus  from  any  interest  of  their 
own,  will  discriminate  in  such  way  as  to  stir  zeal  and  intelli- 
gence, penalize  laziness  and  incomjietency  ?  AlK)ve  all,  will 
the  public  officials  of  a  democratic  community  do  so? 

Whether  a  man  shall  contribute  mon>  or  less  to  the  general 
output  of  tiie  community  dep.Muls  in  most  cases  on  his  own 
spirit,    -  on  his  choice  and  will.     Conspicuous  ability  and  the 
temperament  that  leads  to  its  exercise  present  a  special  prob- 
lem :  how  to   discover  the  ability,  how  to  stimulate  it.      For 
the  vast  majority  of  men,  efficiency  in  work  depends  on  striv- 
ing   on  self-imposed  habits.     People  do  not  know  how  much 
the'v  ran  do  until  they  are  compelled  t.>  try.     The  virtue  of  the 
systom  of  competition,  of  private  interest,  of  self-dependence, 
is  that  it  leads  men  to  try  hard.     No  doubt,  it  often  fails. 
Among  the  verv  poor  it  stunts  endeavor ;  and  there  is  lack  of 
opp-.rtuuitv  for  developing  latent  faculties.     At  the  opposite 
cxtroni-,  many  of  those  born  to  riches  waste  valuable  powers. 
But  most  men,  l)eing  dependent  on  themselves  and  prosperous 
in  proportion  as  they  exert  themselves  productively,  are  led 
autumatically  to  do  tlu'ir  best.     This  great  and  seemingly  in- 
dispensable motiv.-  force,  no  socialistic  scheme  can  bring  to 

beiir  with  effect. 

§:j.  Similar  questions  nrise  as  to  lemler.ship.  All  progress, 
material  as  well  as  spiritual,  depends  on  the  selection  of  the 
r. -ht  lea.lers  and  on  .purring  them  to  the  best  rxerris,.  „f  their 
fiu  -Ities.     What  is  th<-  outlook  for  effective  leadership  under 

socia.ism? 

The  possibilities  seem  tu  me  me;it.-r  th.ui  ^oiiic  eritiCH  admit, 
riie  essential  thing,  say  the  -oeiidists,  is  to  find  n.'W  and  better 


SOCIALISM 


405 


ways  of  inciting  emulation  and  satisfying  the  love  of  distinc- 
tion. What  men  chiefly  strive  for,  and  above  all  what  men  of 
leadership  strive  for,  is  fame,  place,  and  power.  In  some 
degree,  too,  they  are  prompted  by  the  mere  instinct  for  the 
exercise  of  their  gifts.  Not  the  poet  and  painter  and  musician 
only,  but  the  man  of  science  and  the  administrator  also  are 
impelled  by  an  instinct  for  achievement  Add  to  this  the 
stimulus  of  emulation,  of  widesjjread  appreciation,  of  con- 
spicuous distinction,  and  the  sordid  rewards  of  present  society 
can  be  dispensed  with.  Give  free  play  for  the  e.xercise  of 
genius  and  power,  —  then  the  ribbon  and  the  laurel  wreath 
will  suffice  as  rewards. 

The  psychology  which  underlies  this  train  of  argument  is 
surely  better  than  that  older  one  which  supposed  that  all  men 
have  a  simple  tiesire  for  wealth  per  se.  Other  things  than  riches 
and  worldly  success  appeal  to  the  artist  and  the  man  of  science. 
The  leader  in  business  also  is  open  to  otlicr  and  hifrher  ideals. 
Government  posts  even  now  have  an  attraction  which  goes 
far  to  outweigh  the  liigher  pecuniary  rewards  of  private  business. 
The  captains  of  industry  and  fortune  l)uilders  are  actuated  by 
very  mixed  motives.  They  follow  the  traditional  patiis  of 
emulation,  them.sclves  but  dimly  conscious  that  the  wealth 
they  pursue  is,afterall,but  a  symbol  of  achievement  andsuccess. 
What  stirs  them  more  than  anything  else  is  social  ambition. 
Therefore,  say  the  socialists,  the  essential  thing  is  some  sym- 
bol of  eminence  tl.at  shall  put  tlie  p.  .^scssor  above  the  common 
herd  as  conspicuously  as  riches  t\()W  do. 

It  must  be  admitted  that  emulation  and  imitation  underlie 
the  doings  of  industrial  leaders,  as  of  others;  but  it  doc-^  not 
follow  that  the  particular  kinds  of  ai)preciation  and  recognition 
familiar  in  our  system  of  property  and  inequality  can  be  dis- 
pensed with,  ('(tarse  men  nee<l  coarse  stimuli.  It  must  l)e 
doubtful  how  far  the  typii-al  person  of  business  ability  will 
respond  to  mori"  delicate  stimuli.  Kven  among  persons  of 
i|it I'llijpf uiij  iiiiil  s')iritu!il  bent  thtT**  is  n  i^v.xiwvo  nf  !?Hit!ves. 
Creature  comforts,  j)ride  of  place  and  power,  command  of  the 
VOL.  II  — ■/  * 


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460       PROBLEMS  OF  ECONOMIC  ORGANIZATION 

services  of  others,  are  not  entirely  despised  even  by  poets  and 
philosophers.  As  few  men  are  wholly  selBsh  and  few  wholly 
altruistic,  so  few  are  wlK)lly  moved  by  the  higher  or  by  the 
lower  forms  of  the  love  of  distinction.  It  is  not  often  that  the 
laurel  wreath  alone  suffices  to  satisfy  ambition. 

Much  deponds  on  the  growth  of  altruism;    and  this  agam 
depends  on  the  spirit  that  pervades  the  community.     The 
nobler  and  wider  feelings  may  be  fostered  or  smothered  m  the 
individual  by  the  atmosphere  which  surrounds  him.     We  may 
expect,  with  the  better  development  of  democracy,  with  the 
spread  of  education,  the  elevation  of  character,  the  clearer 
understanding  of  social  and  economic  problems,  that  the  en- 
vironment will  become  more  favorable  to  emulation  m  service. 
A  simpler  wav  of  giving  rewards  and  distinctions  will  prove 
effective  in  proportion  as  the  sense  of  common  interest  la 
stronger  in  its  hold  on  all.     But  this  is  a  matter  of  slow  evolu- 
tion.    It  is  not  to  be  supposed  that  a  mere  change  in  msti- 
tutions  will  at  once  overturn  the  deep-rooted  sclf-regardmg 
impulses  or  modify  their  paths  of  action. 

§  4.  Another  problem  is  that  of  selection.  Granted  that 
ways  can  be  found  in  the  socialist  state  to  stimulate  and  reward 
the  persons  fit  for  leadership,  how  pick  them  out? 

The  gradations  of  ability,  talent,  and  genius  are  not  recog- 
nized early  or  measured  with  ease.     Those  who  show  promise 
must  go  through  a  stage  of  trial.     High  intellectual  capacity, 
unlike  bodiiv  dexterity,  <l.)es  not  appear  at  its  full  untd  long 
after  u.l-.l.s.vuce.     I'o.'ts,   musicians,   painters,   scholars,   look 
back  witli  mingled  curiosity  and  amus.'ment  on  the  work  of 
their  early  years.     Often  those  wliose  achievements  in  later 
life  prove  greatest  could  not    be  singled  out  in  youth  from 
their  competitors.     M.-n  of  alTairs,  esp.-cially,  are  bred  in  the 
hanl   sriiool   of  experi.-uce.     Tlie   mor(>  proi>iising  are  indeed 
readily  picked  ,.ut  from  the  rank  and  til.-.     Hut  in  what  degre( 
they  are  promising,  and  lu.w  far  tlu-y  will  ultimately  advance, 
is  not  evidei\t  in  tlie  early  stages. 

No  community  has  produced  great  poets,  sculptors,  musi- 


SOCIALISM 


467 


cians,  except  by  the  emulation  and  competition  of  a  large  body 
of  aspirants.  :\Iany  try,  few  succeed.  So  it  is  us  to  men  of 
science,  inventors,  business  leailors.  Often  it  is  tlie  most 
brilliant  of  all,  in  every  field  of  achievement,  who  find  it  hardest 
to  make  their  way;  because  tiiey  are  ahead  of  their  time. 
Those  most  readily  gain  place  and  appreciation  who  have  high 
ability,  l)ut  not  the  originality  of  genius,  —  the  poets  and 
painters  who  do  that  to  which  the  general  taste  has  already 
been  educated,  the  leathers  in  science  and  industry  who  apply 
principles  already  established.  On  the  other  hand,  there  are 
always  hosts  of  men  who  undertake  to  break  new  paths,  but 
prove  not  to  have  it  in  tliem.  The  world  is  full  of  would- 
be  geniuses  and  crack-brained  schemers.  Persons  who  are 
now  called  on  to  take  the  initiative  in  the  processes  of  invest- 
ment, such  as  bunkers,  hardly  jiass  a  day  without  having  new 
projects  urged  on  them,  — some  obviously  absurd,  some  doubt- 
ful, a  few  promising.  An  e.xercist;  of  good  judgment  is  neces- 
sary l)efore  novel  enterprises  can  be  launched  with  promise 
of  success  ;  and  then  must  follow  a  jxTiod  of  experiment  to  test 
the  outcome.  Tiie  same  holds  good  as  regards  tlic  selection 
of  administrative  officers,  managers,  heu  is  of  large  enterprises. 
It  does  not  appear  in  advance  who  has  the  particular  (luulities 
tliat  makf>  an  elTecliv.'  leader;  least  of  all,  who  has  those  that 
make  a  great  ])ath-l)reaking  leader. 

By  whom  is  the  process  of  selection  to  be  carried  on  when 
there  is  nothing  analogous  to  the  "natural"  selection  of  present 
society?  The  discouraged  and  rejected  will  then  be  no  longer 
free  to  s(>ek  some  one  else  to  buck  theii'  jjrojects.  They  nuist 
accei)t  once  for  all  the  decision  of  the  oflieiuls  in  charge,  (iov- 
rrnments  now  find  it  hard  enough  to  do  things  in  the  ways 
already  approved  i)y  experience,  and  to  select  for  their  wurk 
men  whose  (|uulities  for  leudership  have  already  liceii  tested 
in  private  industry.  How  would  it  be  if  the  re^p()Il■;ii)ilify  for 
Helcction  and  promotion  were  entirely  in  the  hainls  of  nlliciuls? 
FiVen  those  pul)lic  business  enterprises  in  which  management 
is  now  most  ellicienl,  are  apt  to  be  a  nfuge  for  inedioerily,  or, 


.'(• 


ill 


*rii 


468       PROBLEMS  OF  ECONOMIC  ORGANIZATION 

at  best,  for  safe  clinging  to  established  methods.     Men  of  new 
ideas  and  far-reaching  projects  find  no  hearing.     The  same  rea- 
sons which  lead  to  the  conclusion  that  in  existmg  society  gov- 
ernment can  advantageously  take  charge  only  of  mdustnes  that 
have  reached  the  stage  of  maturity  ■  tell  even  more  strongly 
against  the  control  by  government  of  all  industry.     It  is  con- 
ceivable that  democracy  will  choose  honest  and  efficient  leaders  , 
oven  this  awaits  the  proof  of  experience.     It  is  well-n.gh  im- 
possible   to    conceive    that    any    governmental    orgamzation 
democratic  or  autocratic,  will  be  able  to  pick  out  the  men  of 
originating    ability.     A    vast    coUectivist    organization    would 
hardly  fail  to  be  deadening  to  genius  of  all  kinds.     Wonld  not 
its  selection  of  leaders  be  at  best  a  recognition  of  ability  to 
do  well  what  is  already  well  done? 

§  .5  Considerations  of  a  similar  sort  apply  to  the  develo))- 
ment  of  capital.  The  mere  accumulation  of  capital  in  a  social- 
ist .tate  is  perfectlv  feasible,  as  was  noted  in  the  last  chapter; 
that  is,  the  setting  aside  and  "saving"  of  a  surplus.  But  this 
is  only  the  first  st.-p  in  the  process  by  which  real  capital  is 
added' to.  Tools,  implements,  "capital  goods,"  are  not  saved; 
t hoy  are  made.  More  of  them  can  be  made  to  advantage  only 
if  there  is  progress  in  the  arts.  The  effective  increase  m  the 
rounnunity's  capital  can  take  place  only  by  improvement  and 

iavention.  ,        ,  x    xi 

In  th,'  sketches  of  Utopias,  there  is  commonly  reference  to  the 
Rreat  nuchauical  improvements  which  will  b.«  seen  in  the  ideal 
society,  -  vast  systematic  plant,  automatic  devices,  supcM- 
sossion  of  dull  manual  labor  by  ingenious  machines.  The 
^  .leiners  speak  as  if  these  tilings  came  of  themselves.  lu  fact 
the  -rent  m.-chauical  a.lvauces  hav.  come  in  the  past  by  slow 
step"  with  ,>xperiinents  an<l  failures ;  depeiulent  on  the  accu- 
mulaii..n  of  surplus  means,  but  not  caused  by  it.  Though  the 
future  is  lik.>lv  to  see  tools  perfected  far  beyon<l  what  we  now 
possess  all  such  drvi<-es  will  come,  as  they  have  come  in  the 
past,  by  trial,  by  sol-.-Hou,  by  evolution.     There  must  be  not 

I  Sr>,>  Chapter  62,  |  2. 


SOCIALISM 


469 


only  the  means  for  getting  new  capital  made,  but  organizers 
and  inventors.  The  process  of  merely  adding  to  the  number 
of  existing  tools  and  machines  is  easy.  Wlien  once  the  turbine 
engine  and  the  automatic  power  loom  have  been  perfected, 
almost  any  one  can  make  more  of  the  same  k=nd.  But  to 
improve  the  loom  or  the  turbine  still  further  calls  for  a  very 
different  procedure  and  a  very  different  kind  of  man. 

The  increase  of  effective  capital  is  thus  closely  interwoven 
with  the  selection  of  capable  leaders.  Both  are  essential  for 
continued  progress.  For  both,  existing  society  offers  the  bait 
of  riches.  With  an  id(>ally-pcrfected  community  and  with 
ideal  leaders  spontaneously  cliosen,  all  things  are  indeed  pos- 
sible. But  under  a  non-competitive  organization,  even  in  a 
community  far  advanced  in  intelligence  and  character,  there 
would  seem  to  be  but  slender  prospect  for  sustained  material 
advance. 

It  may  be  said,  of  course,  that  advance  in  production  is  no 
longer  a  matter  of  the  first  consequence.  Better  distriliution 
may  l)e  thought  the  prime  requisite.  If  the  whole  income  in 
civilized  communities  were  (>qually  divided  now,  would  not  all 
have  enough?  Possibly;  the  question  is  simply  how  much 
suffices.  It  would  i)r()hably  be  a  liberal  estimate  of  the  average 
income  of  a  family  iu  the  United  States,  the  most  prosperous 
country  on  the  globe,  if  it  were  stated  at  one  thousand  dollars 
a  year,  ^^'llen  we  consid(>r  what  this  meaus,  in  food,  shelter, 
clothing,  education,  recreation,  we  can  hardly  be  content  to  let 
it  stand  as  the  last  stage  in  material  progress.  Surely  it  is  but 
the  b(>ginning  of  what  we  may  hope  to  see  in  the  centuries  to 
come.  Those  who  drerim  of  th(>  great  perfections  to  be  seen 
in  the  .socialist  state,  of  the  jx-rfected  automatii'  macliiivcs  ;iiid 
the  superal)un(lant  products,  ipm  facto  confess  that  much 
beyond  the  present  stage  of  productiveness  is  desiral)le.  .\nd 
the  more  "scientific"  soci.ilists,  also,  wiion  they  speak  of  the 
inevitable  victory  of  larg(>-sc!ile  production,  of  the  disappear- 


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there  is  still  occasion  for  those  advances  iu  the  arts  on  which 


<'i! 


470        PROBLEMS  OF  ECONOMIC  ORGANIZATION 

the  spread  of  large-scale  production  depends.     Such  advances 
to  repeat,  do  not  come  by  any  automatic  process ;    nor  is  it 
probable  they  will  be  achieved  in  the  future  in  any  other  ways 
or  under  any  different  motive  forces  than  those  which  have 

acted  in  the  past. 

8  0  The  questions  between  private  property  and  socialism 
are  thus  at  bottom  .luestions  as  to  men's  character  motives, 
ideals  Thev  are  questions,  in  so  far,  of  psychology;  in 
more  ■  famiUar  language,  of  human  nature.  They  are  not 
simple,  but  highly  r-omplex;  because  human  nature  is  highly 

complex.  .   ,, 

What   is   sometimes   called   "strictly  economic      rea.soning 
rests  on  the  assumption  of  deliberate  intelligent  choice  of  the 
procedure  that  brings  the  most  gain  to  the  individual      It 
assumes  he.lonism  in  its  simplest  form.     Motives  other  than 
the  self-regarding  ones  are  suppos(-d  to  sliow  tluMUseives  only 
in  matters  that  belong  outside  the  "economic"  sphere,  -  in 
the  familv  relations,  in  religion,  in  charity,  perhaps  in  political 
action.     Bvit  human  nature  is  not  so  simple  as  this,  nor  so 
neatlv   divided  into   .lisparate   parts.     Men   are   not   wholly 
..Ifish  or  wholly  unselfish.     True,  in  most  of  their  dealings 
with  stringers  to  the  blood,  they  pursue  their  own  advantage ; 
and  it  is  this  fact  which  gives  validity  to  "strictly  economic 
doctrines      But  they  do  not  follow  their  a.lvantage  ruthlessly. 
In  the  future  they  may  f<.llow  it  even  l.^ss  ruthlessly  than  they 
do  now      Thev  mav  be  restrained  not  only  by  the  law,  but  by 
a  higher  moral  sense.      H.nnan   nature   varies  in  this  regard 
from  age  to  a'.v,,  and  often  vari.s  for  tlu>  same  indivi.hial  with 
his  own  ehan-iing  vars.     It  may  improve  so  much  in  the  future 
as  to  make  feasible  ,,lans  <.f  so.'ial  reorganization  which  now 

.seeiii  (juite  utoiiian. 

So  it  is  witli  Ihe  impulses  of  emulaticm  and  (listinetKm.  In 
the  past  th<-v  liave  turne.l  usually  lo  some  form  of  domination, 
in  ...■cord  with  that  instinct  of  struggle  and  eomiuest  which  we 
have  inherite<l  from  savage  ancestors.  I'ow.t  over  others  has 
been  the  keynote  of  political  and  economic  history.     It  was  at 


'ii,  w.'.  W^I^ 


SOCIALISM 


471 


the  base  of  the  feudal  system.  It  afifects  enormcmsly,  though  half 
unconsciously,  the  struggle  for  wealth  in  nioilern  society,  whose 
ways  of  emulation  are  still  much  under  the  influence  of  the 
feudal  traditions.  The  love  of  distinction  is  so  universal  and 
so  rooted  that  it  cannot  be  eradicated.  But  it  can  conceivably 
be  turned  into  directions  which,  while  still  satisfying  the  ineradi- 
cable impulse,  will  lead  to  a  wider  spread  of  the  elements  of 
happiness.  A  spirit  of  service  may  replace  the  spirit  of  domi- 
nation, and  emulation  may  be  for  the  greatest  promotion,  not 
of  the  individual  interest,  but  the  common  good. 

We  arc  much  better  men  than  our  savage  ancestors ;  more 
altruistic,  on  the  whole,  as  well  as  more  intelligent.  Of  this 
general  betterment  the  last  hundred  years  have  supplied  many 
illustrations.  Suffering  will  not  be  endured  as  it  was  in  former 
times ;  the  mere  description  and  exposure  of  it  means  that  .son.e- 
thing  will  be  done  to  stop  it.  The  abolition  of  cruel  punishments 
is  a  phenomenon  of  large  significance.  The  steady  develop- 
ment of  social  legislation,  and  the  increase  of  charitable  and 
educat  endowments,   are   other   results   of   the   sense   of 

commou    .terest,  of  the  growing  altruistic  imp'ilse. 

From  this  point  of  view,  it  may  be  s;i  II  the  great  social 

mov(»ments  of  modern  times  rest  on  the  sui  s,  and  that  all 

tend  away  from  individunlism  and  in  the  direction  of  socialism. 
Though  important  distinctions  exist,  as  has  just  been  noted,' 
between  full-fledged  socialism  and  public  management  of 
selected  industries,  it  may  none  the  less  be  maintained  that  the 
movement  for  public  management  and  control  rests  on  the 
spread  of  a  more  altruistic  spirit.  And  the  substitution  of 
public  for  private  management  is  not  onl  impelled  by  this 
higher  social  spirit,  but  depends  for  its  ev  tiril  success  on  a 
high  level  of  character  and  intelligence.  Of  lal)or  legislation, 
also,  it  is  to  l)e  said  that  it  isbotli  impelled  by  the  spread  of  better 
ideals  in  the  community  at  large,  and  dependent  for  its  ulti- 
mate good  results  on  betterment  of  character  among  the  la- 
borers themselves.     Thus  the  difi'erences  in  spirit,  in  method, 

'  See  Chapter  64,  i  4. 


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472       PROBLEMS  OF  ECONOMIC  ORGANIZATION 

in  limiting  conilitions,  between  socialism  ami  other  movements 
for  reform,  may  be  said  to  l)e  only  differences  in  degree. 

But  the  differences  in  degree  remain  vast ;  and  such  radical 
transformations  in  human  nature  ami  in  human  institutions 
as  the  socialists  expect  are  not  to  be  looked  for  within  any 
stretch  of  time  of  concern  to  present  generations.     How  far 
changes  in  men's  motives  ami  ideals,  ami  so  in  their  pubUc 
and  private  relations,  will  ultimately  go,  it  would  be  rash  to 
predict.     But  it  is  certain  that  th(;y  will  proceed  very  slowly. 
For  long  ages  men  will  remain  very  much  as  they  now  are, 
responsive  in  some  degree  to  the  higher  and  larger  impulses, 
yet  in  most  of  their  dealings  with  each  other  acting  mainly 
under  the  sway  of  those  lower  and  narrower.     They  will  need 
to  be  spurred  to  vigor,  to  the  full  exercise  of  their  powers,  to 
self-restraint,  by  their  own  needs  and  interests  and  by  the 
selfish  altruism  of  the  family  affections.     So  long  the  f  stem 
of  dependence  on  one's  own  exertions,  of  bargaining  be'    een 
individuals,  of   private  accumulation  and  private  ownership, 

will  persist. 

It  may  be  suspected  that  the  divergence  of  opinion  on  the 
possibilities  and  ideals  of  socialism  often  hinges  on  differences 
between  the  disputants  in  character  and  temperament.     Per- 
sons of  highly  altruistic  character  easily  believe  that  others  will 
respond  to  the  motives  that  actuate  themselves.     Those,  again, 
who  are  most  happy  when  engaged  in  useful  labor,  even  though  it 
be  sustained  and  monotonous,  believe  that  others  will  cheerfully 
work,  as  they  ilo,  with  little  regard  to  the  rate  of  remuneration. 
So  it  is  with  the  ideals  of  life  and  the  ultimate  sources  of  happi- 
ness.    To  some  opponents  of  socialism,  its  progra  n  is  unattrac- 
tive because  it  offers  a  world  without  strife,  —  as  tame  as  a 
sport  without  danger.     To  them,  peaceful  enmlation  and  com- 
petition only  to  serve  the  cominon  good  are  things  flat  and  stale. 
They  see  no  zest  in  life  without  the  prospect  of  victory,  and 
therefore  the  possibility  of  defeat.     And  ^n  it  is  as  to  a  stereo- 
typing of  life  which  would  seem  to  be,  in  some  degree  at  least, 
inevitable  in  a  sociahst  state.     The  advocates  of  individualism 


SOCIALISM 


473 


say,  let  men  ruin  thomselves,  if  they  \vill,  and  bring  ruin  on 
those  nearest  and  dearest  to  them ;  can  they  rise  to  heights 
of  happiness  and  perfection,  of  full  development  of  personality, 
unless  they  have  a  choice  in  shaping  their  careers  to  the  sweet 
or  hitter  end?  Persons  of  a  placid  temperament,  on  the  other 
hand,  are  attracted  by  peace,  security,  mutual  help,  assured 
comfort ;  a  world  v.ith  no  glittering  prizes,  but  no  abject  failures. 
Freedom  means  different  things  to  different  people.  To  .some, 
it  promises  nothing  unless  it  be  the  choice  to  compete  and  to 
win  and  to  reap  the  fruits  of  winning.  To  others  it  means  escape 
from  pain,  from  the  need  of  holding  one's  own  against  superior 
competitors,  from  the  subjection  of  defeat.  Such  differences 
in  temperament  can  be  brought  into  accord  l)y  no  reasoning. 
Hence  the  debate  on  the  merits  and  attractions  of  private 
property  and  socialism  may  be  expected  to  go  on  indefinitely. 

§  7.  In  the  preceding  pages,  no  far  look  into  the  future  has 
been  essayed.  Only  for  the  next  few  generations  can  we  venture 
on  some  predictions.  Pui)lic  ownership  will  spread,  though  how 
fai  we  cannot  be  sure.  The  plane  of  competition  will  be  raised  ; 
the  institutions  of  property  and  inheritance  w^ill  be  narrowed 
in  scope.  For  the  immediate  future  we  see  .some  reforms  dearly 
called  for,  others  awaiting  inquiry  and  trial.  But  what  of  the 
final  outcome?  Will  the  evolution  of  society  eventually  pro- 
ceed to  the  socialist  state? 

The  so-called  materialistic  interpretation  of  history,  as 
worked  out  by  Marx  and  adopted  by  others  of  more  or  less 
socialist  drift,  tries  to  give  an  explicit  answer.  The  futun' 
will  inevitalily  bring  the  disappearance  of  private  ownership  in 
instruments  of  production  and  (he elimination  of  the  property- 
owning  and  income-receiving  class.  Stripped  of  its  inessentials, 
the  prediction  is  simple  enough.  Large-scale  production 
will  spread  further  and  further;  the  small  producer  and  the 
middle-sized  will  disappear :  there  will  remain  only  a  few  great 
capitalists  and  a  propert;  ess  proletariat ;  the  mas^(>s  will 
become  more  intelligent  and  conscious  of  their  power;  the 
capitalists  will  then  be  dispossessed  (possitily  l)ut  not  neces- 


I    i 


}■  t 


iT?F 


^vt; 


??<i~ 


35SilSW^S?Sf 


.     H! 


J      ♦ 


474       PROBLEMS  OF  ECONOMIC  ORGA.^IIZAriON 
sarily  hy  bloody  revolution),  and  the  fully  organized  socialist 

state  will  emerRe.  •       ^      *♦ 

One  thing  is  certain :    the  overturn  is  not  imminent.     At 
the  time  of  th.'  revolution  of  1848,  Marx  thou.^ht  that  the  final 
sf.ire  in  this  industrial  evolution  was  setting  in.    The  first  stage, 
h,nff  extended,  had  h.-en  that  of  the  direct  exi>loitation  of  the 
hilH,rer   through   slavery   and   serf.lom.      During   tlie   .econd 
stag."   lasting  from  th.-  tin...  of  the  in.lustrial  rev.lution  in  the 
eighteenth  eenturv  to  th.-  mi.l.ll.'  .>f   th,-  nin.>teenth  c-entury, 
the  propertv-.,wning  .-lass  iia.l  <>xploite,l  th.>  free  laborer      The 
third  and  last  stag.-,  that  of  the  emancipation  .)f  tiie  laborer 
through  disposs..ssion  of  th.-  .-apitHlist,   was  supposed  to    be 
ushere.1  in  by  the  rev..luti.)n  of  1818.     But  of  this  pre.hction 
ft.  littl.-  has  b.-en  fulfill.-.l  as  ..f  th..  .-onlid.nt  exp<-ctation  then 
..herishe.1  by  .>th..rs  that  an  era  of  univ.rsal  .lemocratu-  govern- 
ment was  setting  in.     Th.-  uprising  of  1818  subsid.^l.  with  few 
immcliate  changes  in  politi.al  .,r  social  struct ur.-.     Its  lasting 
,.(T.>cts   fus.-.l  with  thos.-  ..f  nth.-r  movein.-nts.  .-ame  about  by 
slow  and  gra.lual  .-hanges.     Th.-  fa.-e  ..f  s....i.-ty  ha-,  been  much 
altered  in  tli.-  last  fifty  years,  but  it  h.as  n..t  l.een  n-v,.lutu.nized. 
The  socialists  th.-mselv.-s  an-  coming  to  n-.-ogni;:.-  th.-  inevi- 
tablen.-ss  of  gra.lual  .-hang.-.     A  curious  contr..versy  is  going 
on  in  (J.-rmanv  witl.in  th.-  socialist  ranks,  h.-tw.-.^n  those  who 
hol.l  t..  th.-  stri.t  .Marxian  doclrin.-  .)f  impen.ling  revolution  and 
early  dispossession,  .-ind  thos.-  who,  maintaining  that  cli.'mges 
will'b..  slow,  a.lvo..at.-  a  p..licy  of  ..pi>..rtunism.     Marx's  Cnnitnl 
has  he..n  a  sort  .>f  bibl.-  in  llu'  ( !.-rm.-.n  so.'ialist  .■amp.     Thmigh 
the  h....k  .•..Mt;,in<.  with  ..vidcn.'.-  ..f  .■xtra..r.linary  int.-ll.-.-tual 
abilitv    mu.'h  ..l.vinu^lv  ...it.-nal.l.-  mat, .-r,  the  L.yal  s.)rialists 
arc  unwilling  to  iiiv-  up  ar.y  of  its  t.^u^hings.     Y.t  the  pr.mf 
is  brought,  bv  H-riali-lv  i„.  I.--  coiivi.ic.-.l  than  was  the  l.^d.-r, 
th.Ht  his  pr.Mli.r,onK  .M'.  to  rcoMo.nic  evolution  are  wnmg.     The 
niiddle   class    i«    n..t   ,li^M;>p.-:,rinu.     Th.-    numb.-r  of   th.-  rich 
Knnv-.  but  ih.-  number  ..f  tl,.-  ,no.l..rat..|y  u.H-to-do  gnm-  also. 
(Iri.Mt  ,..«nb!i>hMH.Mts  innvMH-,  b.it  va<l-scal.-  pro.luction  .lo.-s 
not  cov.-r  th.-  wl..,|.-  ind.i-trial  field,  an.l  there  is  ns  yet  n..  mdi- 


SOCIALISM 


476 


cation  that  it  will.'  Dpinocracy  extends,  and  the  trade-union 
movement  prows.  But  there  i.s  little  .'^isn  of  an  impending 
c1h.s.s  war,  or  of  u  resolute  and  eonscious  adoption  of  the  socialist 
principles  hv  orRatiizeil  workinj^inc  n. 

It  is  true  (iiat  changes  are  likely  toi)roeeed  more  quiekly  in 
the  future  than  they  have  done  in  the  past.  The  spread  of 
education,  the  ease  of  eonunue'cation,  the  enormous  facilitie.s 
for  ])ropaf!;anda  through  cheap  p-in'inK,  make  p  ililic  opinion 
more  moliile.  The  inertia  of  settled  hiil>its  is  less.  Moreover, 
the  last  fifty  years  have  seen  wonderful  ehan!:;es  in  industrial 
organization  as  well  a-  in  the  mechanic  arts;  the  next  fifty 
years  may  see  changes  asffreat.  The  consolidation  of  industry 
will  prohalily  heconie  accent u.atcil  and  puiilic  ownership  wi'l 
almost  surely  sjiread.  The  twentieth  century  iiefore  its  close 
is  likely  to  see  developments  that  wi/uld  seem  unthinkable  to 
the  staid  .Vmerican  husinc^ss  man  «)f  our  own  time. 

Hut  the  fundamental  social  institutions  will  not  he  (piickly 
revolutionized,  .\s  compjired  with  such  an  overturn  as  the 
uncomproinisinj;  social!  t  would  liriiiu;  about,  the  most  radical 
ehanifes  now  in  jn-ospeet  will  leave  the  face  of  society  very 
much  the  same.  The  Au>tralian  colonies  now  have  pul)lic 
ownership  of  railways  and  other  rfp'at  enterprises;  they  have 
comi)ulsory  arbitration  and  minimum  wages;  they  have  pn)- 
Rressive  taxation  and  the  like.  H"t  tliey  hav;'  competition 
and  money-makinii,  social  clas-es  juid  pecuniary  ambition, 
niiirked  ine(iu;ditii'^  in  pmiierty  !md  iiicom(\  idle  rich  and  over- 
worked po(tr.  Till'  iraveler  who  joinneys  there  finds  a  state 
of  thiniis  not  e<'-eiitially  dilTerent  from  that  in  the  Tnited  St.ites, 
where  the  indi\i<hi:di^tie  traditions  ii'tain  their  hold  s(»  muih 
more  tenaciously.  .^society  can  Ko  a  lonu;  wa>  ie  overliauiinu 
present  institutions  without  appro.'ichim;  the  soci  liisi  no.d. 

The  reason  wli\  th"  proce-s  of  social  evolution  is  slow  is  th.at 
men  ihenisrives  chamte  slduly.      Not  only  hum.iii  n.tture  .md 

1  CunipMri'  ll\.- fit'iir.  ■<  iilri'iilv    liivn   in  W'^l    V.  CliipliT  .'il,    55  1     \.  :uh\    in 

llnuk     1,    ClmptM      I.     5    I.        Sr,      ul-o    II'  MINI,  ill'.^   /■.■,, ./.(/..i.n/'V  .M'.      l''^     ImijIikIi 

tr!iii.»tiiti..|i.  11  ."iT.  Ill  rn  t' 111  1- "iir  i.t  fli.  in -t  Kn-.vvii  Min-ni.'  llf  imii  .iitlimlin 
•  iiTiiiHii  miriiili^lM.  nil  nlili'   iihI  liii'liiiiiinl'il  wulir. 


'/ 


I 


i 


!     n 


470       PROBLEMS  OF  ECONOMIC  ORGANIZATION 

human  motives,  but  the  current  standards  of  right  and  wrong, 
the   beliefs    as   to   what    constitutes  right  government,  right 
ownership  of  goods,  right  relations  between  men  and  between 
men  and  women, -tiiese  foundations  of  society  are  extraor- 
dinarily stable.      Even  when  shaken  by  a  great  upheaval  like 
the  French  Revolution,  they  prove  in  a  short  time  to  have  l)eeu 
little   disturbed.     They    are    maintaim-d   from   generation   to 
generation  l)y  the  unseen  l)ut  pervasive  influence  of  example 
and   imitation.     The   slowness    with    whidi    education    works 
out  results  on  any  large  scale  illustrates  the  difficulty  of  chang- 
ing lial)its  of  thought   ami  conduct  among  masses  of  men. 
Hetter  education  is  rightly  deemed  the  greatest  of  social  sol- 
vents ;  but  it  is  hanl  to  bring  a  real  influence  to  bear  on  the 
millions  who  are  to  be  atTected.        'he  educational  leaders  tell 
us  that  the  things  to  be  aimed  at  are  clear  thinking,  accurate 
observation,  trainin;;  in  the  imlepemlent  ise  t)f  the  faculties,— 
above  all,  conscience  and  character.     Yet  even  the  greatest 
educational  advances  go  but  a  little  way  toward  attaining  these 
i-lusive  ends.     How  slow  is  tlie  improvement   in  methods  of 
education,  how  much  slower  the  iiiHu.'Uce  on  the  character  and 
the  daily  life  of  the  individual ! 

The  (luestion,  noiu'  the  less,  persists  whether  there  is  not  a  goal 
for  the  .levelopment  of  .society.  Tliough  one  may  l)e  convinced 
that  the  full-grown  socialist  state  is  not  to  come  in  any  visible 
future,  may  it  not  come  in  the  end  ■.'  I  cannot  believe,  for  my- 
self, tiiat  it  is  possible  to  foresee  what  the  tli.stant  future  will 
bring.  Consid.T  whiit  was  the  state  of  civilized  soci.-ty  some 
four  hundred  years  agi>,  at  the  culmination  of  the  Renaissance 
and  the  iirst  >tages  of  tlie  Protestant  Reformat inii :  wlio  could 
then  imagine  what  ("evelopment  would  tak(>  place  in  the  coming 
centuries,  wi.at  pohtical,  social,  intellectual,  industrial  changes 
would  occur?  No  less  impo'^-^ible  is  it  for  us  to  conceive  what 
will  l)e  the  changes  in  the  centuries  that  ii<'  Mow  us.  The 
system  "f  private  property,  if  it  maintains  itself,  is  indee<l  likely 
4  .  1 .i;r,.», ,,«  iv.wi.  uliui   ii  in  now:    but  whether  it  will 

Tu    t;f    1  t'l  ^>    Mill*  •*  *•■    •' - 

remain  unchaegi'd  in  essentials,  o.-  will  be  gradually  stri|>pe(l  of 


SOCIALISM 


477 


many  features  now  deemetl  essential,  or  transformed  at  last 
into  something  like  the  socialist  state, — all  this  we  cannot 
foretell. 

The  impossil)ility  of  seeing  far  into  the  future  is  admitted  by 
the  less  fanatical  among  the  socialists  IJH'iiiscIves.     The  abo- 
lition of  great  extremes  in  income,  the  guarantee  of  d(>cent  com- 
fort to  all,  the  disappearance  of  a  leisure  class,  the  assumption 
by  the  state  of  the  oversliadowing  great-scale  industries,  the 
control   of  all  natural  resources,    -  these,  indeed,  seem   to  l)e 
essential  points  in  this  program.      But  just  how  far  gradations 
of  income  nuiy  be  i.llowed  to  remain,  how  far  in(hvi(lual  owner- 
ship of  proi)erty  ir.ay  persist,  what  play  may  l)e  allowed  for  some 
sorts  of  competitive  industry,  are  matters  on  which  their  i)ro- 
gram  is  unsettleij.     Kacli  is  entitled  to  construct  his  own  ut()i)ia. 
With  this  haziness  as  to  the  ultimate  goal,  many  sociaUsts 
accept  a  tentative  and  sometimes  wavering  procedure.     The 
revolutionary  wing  is  less  dominant,  opportunism  more  widely 
accepted.     .Ml  sorts  of  changes  in  i)resent  society  arc  welcomed, 
so  1'  Mg  as  their  gei'Tal  drift  is  in  acconl  with  the  coUectivist 
i(K.         such    as    workmen's   insurance    and    labor    legislation, 
state   ownership    and    control    even    within    a    narrow   range. 
(  ofiperation   and   trade-unions   among    workmen   are   no   less 
w(>lcome,  even  though  the  sc(.p<«  of  these  movements  be  strictly 
within  the  sy.stem  of  jirivate  property;  since  they  are  means  of 
educating  the  memlxTs  and  training  them  in  hal)its  of  com- 
m(m  action. 

It  is  fortmiat<>  tliat  men  of  all  shades  of  opinion  can  work 
together  in  the  reforms  that  are  called  for  in  Mie  visibh-  future. 
The  uh..iiate  outcome  may  be  allowed  to  take  its  own  coursi'. 
Little  that  we  now  do  can  have  much  elTect  in  shai)iug  it.  The 
discussion  of  socialism  is  by  no  means  barren,  it  centers 
attention  on  the  fundamental  prolilcMis  of  .xiety.  on  tlu>  ba.'iis 
of  existing  institutions,  on  the  sources  from  uhicli  coming 
growths  nuist  proceed.  It  points  to  a  goal  that  ha-  liad  charm 
for  some  of  the  nol'lest  of  men.  It  deserves  the  n-pect  even 
of  those  to  whom  the  goal  is  not  attractive,  or  to  whom  it  seems 


i 


^1^ 

^^-t, 


di 


478       PROBLEMS  OF  ECONOMIC  ORGANIZATION 

quite  unattainable.  But  it  affects  in  no  serious  degree  present 
cndeavoi-s  and  aspirations.  As  to  those,  there  is  a  noteworthy 
accord  of  opinion.  The  course  which  society  should  take 
for  tlio  next  generation  or  two  is  not  obscure,  and  all  men, 
socialists  as  well  as  social  agnostics,  can  join  in  efforts  to  turn 
it  to  the  direction  adnntted  by  almost  all  to  be  that  of 
progress. 

Refkkences  on  Book  VII 
On  raiUvav^^  A.  T.  Ha.Uoy.  R^Uroad  Tr,uis,,ortntion{\HSo),  though 
of  o  1  U.l  has  not  boon  .o.u.loUAy  supe.-s.d.l.  Moro  n..-out  a.-o 
W  M.  Acworth,  Tin  Elnnenf.  of  linihr.,,  Econom,cs  (1"''<^-  "^d 
F  U  .lohnson.  American  Raila^ay  Trons,,ortaHon  (m^  ed.,  l.tlO) 
fi; .  hU  ."ritl.n  prin.arily  a.  a  textbook  for  An.enoan  coUoges.  An 
lI,.,'-;;;:;o«raph  *;   M.  B,Han.n;ona    /.,a;..    /^.^..^^^^ 

;:Z  'u:Zc. . :  ■  ::X';^  ^^  -r,s  ^v....  ...n^  ^^^^ 

.,1  a,.fiiUHl    is  of  'n^'h  value.     On  coml.inations  and  trusts.  R.  L.ef 

'"';;;;  'niZ'ol^X,  L.  narwin.  Muniri,.l  Trndr  (1003).  is  an  aeut. 

.rit   a         '<.  I.v  an  opponent  ;  a  l.ri-fer  staUMuent  of  the  san>o  rea.on- 

n^i    in  this  author's  Mnn,ri,..l  0,nnr.h,p  (1007).     .\  mass  of  mfor- 

ZtL.;:.;!;  diseussion  ..u  ...h  si...  u  in  the  y..,.,.w  - '  -'^;;:;;;;:; 

a,„,   Vnr.U  Oprrnti.n   -,f  I'Mic   (  fn>li,..   puhhshe.l  l.y     ho  ^■'  "  "^ 
r    i,'  F..d,.n.ti on  C!  vols..  1.,.(>71.      '.  det.iie.l  treatn.ent  of  the  relal.on 
o/  Imlipalities  to  •■puKli.  utilities-  is  in  D.   K.  W.leox.  Mun.apnl 

't,,..  1.,..,Us  on  soeiahsu,  denl  h.r.ely  nith  ,.„nt  rovers,.,  wh.eh  dona 

,ro, 1  to  the  h.nrt  of  tl,e  n.atler.     This  s.e.us  to  me  to  hohl  ot  K. 

Z:.,L  K.inl.l  ^Kn.lish  transhaion.  IKtM.,  the  n.ost  f---  '  "«^^ 
inlh.eM.ini  of  so.i:di.l  hooks.  A.non,'  th-  .unun.erald..  ;>  -  '-  " 
;;:   refutations  of  the  M:,r.i...  doMriue.  ,u..y  '••;,-•;;';"';;.;  '  ^^     ' 

and  ,1     !•:.   t.e  Itossiirnal,  OWWW.SWmW :    a  (  r.Or.sm,  ltM)7.     A 

"      i'e    and    vigorous    s.at.n.ent,    hased    n.aiuly    on     ^''"■'^    -    - 

i'   •      '     lOKi^       I    So'o-o    .s',»i.i/i.si«   (I'tlMi),  isa   pof.iiiar  Hint..- 


SOCIALISM 


479 


J.  Mackaye,  The  Economy  of  Hapi>;iu's>i  (1906),  advocates  socialism  in 
a  train  of  rigorous  utilitarian  reasijniiiH;. 

AmouK  expository  and  critical  books,  A.  SchaeiBe,  The  Impossibilily 
of  Sucidl  Dctnocracij,  and  The  (jiiiiil::is' nee  of  Soeiali^in  (English  trans- 
hilions,  l.S!)2  and  l'J02j,  arc  excellent,  especially  the  last-named.  The 
most  stimulating  and  diseriminaling  advocacy  and  discussion  of 
socialism  is  ofti'n  by  writers  who  d  )  not  pretend  to  bo  "scientifi.-." 
Such  arc  H.  O.  Wells,  .4  Modern  fVo/wn  (I'JO.j),  and  Xew  Worldt  for  Old 
(lOOS),  and  (i.  Lowes  Dickinson,  Jii.fliee  (ind  IJhcrty  (  KtOS). 

On  this  Hook,  as  on  Book  VI,  see  the  !)i!>li(;;,'rai)lii'  al  memoranda  in 
tiie  Guide  to  Readimj  in  Soriol  K!hien  and.  Alli'd  SiihJ,rl:<,  published  by 
Harvard  Iniversity  (I'JIO). 


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BOOK    VIIl 
TAXATION 


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CHAPTER  66 

Principles  Undeklyino  Taxation 

§  1.  The  essence  of  a  tax,  as  distinguished  from  other  charges 
by  government,  is  the  ahsenee  of  a  direct  (piid  pro  quo  between 
the  taxpayer  ami  the  public  authority.  It  follows  that  a  tax 
is  necessarily  a  compulsory  levy.  The  post  office  illustrates 
the  payments  which  are  different  from  taxes.  A  charge  is 
made  by  it  for  each  letter;  no  one  is  compelled  to  contribute 
toward  its  revenue  unless  he  makes  use  of  its  service.  The 
revenue  from  postage  stamps  in  almost  all  countries  roughly 
equals  the  expenses  of  conducting  the  business,  and  each  indi- 
vidual user  pays  (again  with  a  rough  approximation)  in  propor- 
tion to  the  service  which  he  gets.  The  same  situation  exis+s 
when  a  government  manages  the  telegraph  or  the  railway. 
But  when  it  maintains  streets,  a  lire  department,  a  police 
force,  it  supplies  the  several  services  free  to  every  one.  On 
the  other  hand,  it  calls  upcm  every  one  to  t'outribute.  It  is 
immaterial  whether  he  happens  to  be  benefited  directly  or  in- 
directly ;  a  great  deal,  a  little,  or  not  at  all.  What  one  i)ays  to 
the  government  for  a  postage  stamp,  for  a  railway  ticket,  for 
a  sup]ily  of  water,  is  in  the  nature  of  a  priee  for  a  specific  serv- 
ice. It  is  very  different  from  a  tax,  which  is  exacted  from  all 
alike,  and  without  any  regard  to  the  individual's  use  of  the 
services  sui)i)lied. 

This  severance  of  payment  from  service  is  sometimes  inevi- 
tabl(>.  To  tell  how  much  any  individual  is  beiitfit>d  l)y  the 
maintenance  of  order  through  a  iiolice  force  is  impossilile.  The 
(inly  way  to  supiiort  the  force  is  to  call  upon  every  one  to  con- 
tribute, in  some  i)roportion  deemed  equital>le.  The  ^ame  is  true 
of  a  nalitarv  force,  whether  regarded  as  a  sort  of  enlarged 
police  or  as  an  instrument  for  national  advancement  in  other 

483 


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484 


TAXATION 


.1,  !  '•' 


ways  Service  for  the  maintenance  of  sanitary  conditions  is  m 
the  same  case.  It  is  conceivable,  as  to  fire-fighting  apparatus, 
that  apportionment  of  the  expense  should  be  made  among 
different  owners  of  inflammable  property  on  some  well-defined 
principle  of  insurance  premium.  But  it  is  obvious  that  the 
whole  community  is  vitally  interested  in  preventmg  confla- 
grations, and  the  support  of  this  public  service  also  takes 
place  by  the  levy  of  taxes  which  disregard  any  question  of  spe- 
cial benefit. 

In  other  cases,  increasing  in  number  as  civilization  progresses, 
the  use  of  taxes  instead  of  prices  is  not  inevitable,  but  is  the  result 
simply  of  a  growing  conviction  of    the  wide  usefulness  of  the 
service.     Highways,  bey<,nd  the  confines  of    cities   or   thickly 
settled  spots,  were  in  former  times  often  mana^'e.l  on  the  toll 
principle  ;   so  were  bridges.     Those  alone  paid  Tor  them  who 
use<l  them,  and  pai.l  according  to  the  extent  of  the  use.     IIenc.> 
their  construction  and  maintenance  were  likely  to  be  left  in  the 
hands  of  private  persons,  to  be  managed  like  any  other  busi- 
n,..s      \.  the  conviction  spread  that  freedom  of  movement 
was  of  general   advanlage,  tolls  were   abolished  on  roads  and 
bridges    and  these  means  of  communication  were  supported 
by  taxes      The  most  striking  illustration  of  such  a  change  in 
general  opinion  is  foimd       the  modern  attitude  toward  educa- 
tion     It  is  entirelv  feasil)le  to  conduct  education  as  a  private 
industrv,  or  to  manage  it,  if  public,  on  a  principle  of  payment 
in  proportion  to  the  expense  incurred.    But  all  civili/.e.l  peoples 
believe  it  to  be  of  vital  importance  that  education  shouM  be 
suppli<'d  to  all.  an.l  should  l)e  sui)plied,  not  on  any  l)as,s  of 
prop..rtional  i^avment,  Init  in  such  way  as  to  uplift  and  advanc- 
the  eninmunitv  at  large.     No  .loubt,  a  motive  .>ven  mon-  dis- 
tinctly altruisti.-  rnters.     -  a  desire  to  equahze  opportumtirs,  to 
make'th.-  way  .^^si..r  for  the  great  mas.ses  of  the  ]K)or.  to  miti- 
gate  inequalities   in  possessions   and  income,     ruder  the   in- 
fluence of  these  converging  motives,  education  is  made  free ; 
not  onlv  elementary  education,  but    in    mor.>   ui   less  drgn- 
lugher  education  as  well.     A  great  range  of  government  activity 


PRINCIPLES  UNDERLYING  TAXATION 


485 


illustrates  the  growing  consciousness  of  common  interest  and 
the  growing  influence  of  sympathy  and  altruism,  —  libraries, 
museums,  parks,  hospitals.  It  has  been  aptly  said  that  the 
growth  of  those  services  which  are  supported  by  taxation 
measures  a  people's  consciousness  of  common  interest,  —  nay, 
its  very  progress  toward  higher  civilization. 

Taxation  necessarily  involves  compiilsory  levy.  People  may 
be  unanimous  in  the  belief  that  it  is  in  the  common  interest 
for  a  given  set  of  services  to  be  undertaken  gratuitously  for  all ; 
but  the  su])port  of  the  services  by  voluntary  contributions  is 
quite  out  of  tlio  question.  There  have  l)een  occasions,  in  times 
of  great  national  peril  and  of  fervently  aroused  public  spirit, 
when  vohmlary  contributions  have  been  an  appreciable  finan- 
cial resource  ;  but  they  have  been  rare  anfl  short-lived.  Even  in 
the  most  irmuinent  daiig(T,  a  steady  and  considerable  revenue 
can  be  got  only  by  conipulsion.  Hence  the  mien  of  the  ta.x- 
gatherer  is  as  stern  under  a  self-governing  democracy  as  under 
the  mo.st  at'solute  desj)otism.  Men's  willingness  to  support 
public  service  does  not  grow  apace  with  their  conviction  of  the 
neeil  of  public  service. 

§  2.  The  first  question  of  principl(>  in  taxation  has  to  do, 
therefore,  with  the  mode  of  apiwrtionment.  In  what  manner 
determine  how  much  the  individual  shall  contribute  toward 
defraying  the  various  public  services  reu(l(>red  gratuitously? 
Shall  he  pay  simply  in  proportion  to  his  income,  or  more  tiian 
in  proportion?  On  this  question  there  are  two  fundamentally 
dilTereut  answers,  the  one  Tnore  cons(>rvative,  the  other  more 
radical :  the  one  maintaining  the  i)riuciple  of  proportion,  the 
other  that  of  ])rogression. 

The  conservative'  opinion,  maintaining  the  principle  of  pro- 
portion, is  v(>ry  simple.  It  proposes  to  call  upon  each  person 
to  pay  in  jiroportion  to  his  income,  and  so  to  leave  the  rela- 
tions between  dilTerent  incomes  undisturbed.  Let  Ihe  rich 
pay  more  in  th(>  degree  to  which  llieir  incomes  are  larger,  but 
in  that  (If^rrof*  o.v.\v.  The  essential  b.;i>ii'<  for  tins  view  is  that 
the  existing  distribution  of  wealth  should  not  be  disturbed. 


I," 


(    \ 


•;  -  ^  h     ■  '■ 


486 


TAXATION 


^1 


I     lU' 


True  some  people  are  more  prosperous  than  otl.ers;  some  are 

T'nthrs  are  poor.     But  these  differences  are  regarded  as 

^::^:^-^,  in  the  unquaUfied  support  of  the  ex.tmg 

,       ,       .  ro    houeht  to  be  in  accord  with  the  maxims  of 

to  n l.^ure  either  the  cost  of  the  pubUc  services  rendered 
less  to   "-^^:"^  ^^^^  ^^j-^^^  ,„  i,i„,  ^f  the  services,  let  all 

K  7  rXfZ  u!  ^1  b  called  on  to  contribute  the  same 
^::^l:T^^  T,.  soci.  ....  thus  romams  e^ui- 
Uh.     iter  the  tax  levy,  as  it  had  been  before 

a' somewhat  different  view,  but  one  load.np;  to  the  same 
restut   ithat  the  existing  distribution  of  property  and  income 
ZuJd  not  be  disturbed  5,  ..«.^.     ^1^^^^^^^ 
lot  other  n.aehinery  for  doing  so  be  ^^^^'^^^^Z^^, 
plies  neither  approval  nor  disapproval  of  tl  e  gulf  b    .ecu 
rich  and  poor,  but  simple  indifference  or  aloofnes>.     The  tax 
"a  h  r"r    it   i     said,  should  not  be  distracted  by  liav.ng    o 
^I'such  large  and  dimcult  ^ial  cpiestuvus      His  ^. 
even  in  its  simplest  form,  is  troublesome  enough .    to  device 
;"    of  securiiig   the  neede<l    revenue  without  arousing  d   - 
001  tent   bevond  enduraiu-e.     This   may   be   described   as   the 
n      ''.l   principle   of   t.x.tion:     according   to   .Inch 
;:jL;lould  cLceru  Itself  sole,   wUU  the  prol  em  ^  ^ 

ing  the  money  for  public  expenses.     It  lea.ls.  l.U     tuc        J 
first  described,  to  proportiou:d  levy  and  to  the  rejection  of  pro- 

''';:;^il  another  "hnancial"  principle  of  taxation  may  be  noted  ; 

one  that  perhaps  should  be  cnlLd  the  cymcal  pr.nnple      A.- 

:;i  ^  to  this    tiie  essential  task  for  the  legislator  is  to  get 

re^nue  in  such  way  as  to  cause  the  mimmum  of  vexatu 
tl  opposition.     Any  tax  is  good  which  brings  m  a  large  n 
evenu!  without  causing  mu-h  protest  from  t  e  P^^-^  " 
,ea.t  front  thos..  payers  who  have  political  uifluence.       f,  ma 

t.n..< r...    oommunity,   high   progressive    tuxes   on   the   ruh 

hrin^'' in  "substantial  returns,  ^^nth..ut  trouble  in  adMuuistr.- 
t^and  without  causing  many  voters  to  revolt,  let  them  be 


PRIN'CIPLES  UNDERL    ..>ja  TAXATION 


487 


imposed.  And,  on  the  other  hand,  if  taxes  on  an  article  con- 
sumed in  sreat  quantities,  such  as  sugar  or  coffee,  promise  a 
hvrsc  revenue,  and  can  be  levied  by  a  hoodwinking  process 
which  prevents  the  masses  from  realising  the  burden,  let  them, 
too,  be  imposed.  "  Pluck  the  goose  with  as  little  sfiuealing  as 
possible."  This  cj-uical  view  is  hardly  ever  advocated  in  so 
many  words;  t>ut  a  great  deal  of  l(':j;i<lati()n  rests  upon  it. 
Every  finance  ininist(>r  has  constantly  to  face  demands  for 
additional  revenue,  au.l  also  opiJosiiiun  from  those  whom  he 
proposes  to  tax.  Tlie  temptation  is  well-nigh  irresistible  to 
follow  the  path  of  least  resistance.  The  very  great  part  which 
indirect  taxes  on  coitunodities  play  in  the  finances  of  all  mod- 
ern countries  is  explicable  chiefly  on  this  ground. 

But  the  question  of  justice  in  laxation  is  at  least  ostensibly 
kept  in  mind  in  nio^t  discussions.  A  consciousness  of  it  under- 
lies the  trains  of  reasoning,  favoring  strict  proportion,  which 
have  just  been  stated,  -both  thai  which  affirms  the  distribu- 
tion of  wealth  to  be  now  just,  and  therefore  rightly  to  be  left 
undisturbed  by  taxation,  and  that  which  simply  would  keep 
taxation  di--  ntangl.' 1  fro:n  (piestions  of  social  reform.  Both  of 
these  opinions  have  the  merit  of  facing  squarely  a  truth  which 
many  writers  on  this  nuieh-dei)ated  topic  have  failed  to  face; 
namely,  that  the  question  of  eciuity  in  taxation  cannot  be  dis- 
cussed independently  of  tlie  eciuity  of  the  whole  existing  social 

order. 

The  courageous  advoc;itcs  of  progression  base  their  views 
precisely  on  the  ground  that  the  existing  social  order  is  not 
perfect,  and  that  taxation  sliouKl  be  one  of  tlie  instruments  for 
amending  it.  Whether  or  no  all  inequality  in  wealth  and  in- 
come be  unjust,  such  great  degrees  of  inecpiality  as  the  modern 
world  sliows  are  regarded  as  not  consonant  with  canons  of  jus- 
tice. Very  rich  p.-rsons  should  be  called  to  piy  taxes  not  only 
in  proportion  to  their  incomes,  but  more  than  in  proportion. 
This  proposal  has  been  called  socialistic;   and  it  is,  if  all  meas- 

.     ,  .  .-  •  i;.,-  1,.    ..,   ....n,..i       Tho^e 

ures  lookmg  to  nuligation  <n  mriinaiity   !:•■•  -o  v.-.-.-v.       i-'"-' 

who  hold       rlace  progressive  taxation  in  the  same  class  with 


i 


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■  y 


488 


TAXATION 


ii,« 


I' ; 


free  e<lucation,  factory  logislutu.n,  regulation  .>f  mono^i- 

fervor  (..rs„rialn'tur...iug.-niTal;  n.ir  ar.  tl«>  "Ki. 
t^L.Jiou  10  so?     Tlaar  oppon.uts  Lav  o  :-  .  "■  "•'  « 

'izr.;..  pi..- .•  o'  M..<„„o,.hs,  t.a.  ..,^..... .; 

diverge  from  tlu-  rule  of  proportion,  you  are  at  sea   .....^ 

:'::;;:  „:  .o„,pa..  t,„.  .,„„.  „.„.*.  ..*  ;;,;3;:-:: 

T      f      1,0  w  rg,.  „■»,.  io  k„ow  i„  .l,a,  .r,r.v.,o,>  I.-  .» 

:*:;  m1:.  t:;:!-..- p-.... ■*.„...,,  ,.™,,- 

™  ifo      .r.U...-,  a,  .-o.npan-.l  »HI.  lla-  l«».r.  "'.t  ""ly  '"  l""" 

'„yi„|,.  llK.y  sl.o.-   that  mil".- '  <1-  '<1"'"    "'    "■■ 

from  which  none  o."  us  can  escape. 

S  .u       p».n-H  have  heen  use.l,  em.><..lyinK  sup.H.se.l  prm- 

ei,^       ^^^^^ 

W  often  saul  that  taxation  slu.uMI>chasM  on      ahUb 

h    (  ernmns  u.-  the  wonl  Lristun<,sf^'ln<,^rit)  or  on  "f  culty. 
1^  hv  n.>  n,..ans  clear  eHher  that  this  pnnc..le  conf.>r. 

u;Lnon>iciusti. that  it  lea.s  to  any  cevtan.  .>n.^^^^^^^^^ 

the  ...ncial  ,H.i..t.       proporti..n  <.r  progression.     ^-^"''^'    ^ 
r  eh  mans    l.il.tv  to  pay  is  greater  than  the  poor  man    .     H 
I :       follow  that   he  sl,ouUl  pay  n.>rM.avily  towanl  puhl. 

"  !•'     His  aUihty  to  pay  for  hrea.l  an.l  coal  .s  aU.  greater  ^ 
iT.^u•cept,tasama,,..rofconrse.andasr^ 
,;  t     hat  h    shouia  pay  for  them  a.  the  .an,M--.-^M-s<ms 

iu'.t,-     wh.-lher   the   strong   an.i    .nuirut,   in. 


PRINCIPLES  T-NDERLYING  TAXATION 


489 


favored,  shouUl  be  in  a  position  of  economic  advantage.'  But 
such  is  tlu>  way  of  tiio  modern  world,  under  the  regime  of  private 
property.  Wliv,  under  tliat  regime,  should  an  entirely  different 
principle  he  applied  in  regard  to  taxation?  Can  the  principle 
of  "al)ility"  he  declared  al)stractly  just  without  maintaining 
also  that  our  economic  system  is  in  general  unjust? 

In  any  ease,  the  principle  of  ability,  whether  or  no  accepted 
as  resting  on  a  conception  oi  justice  difl"<'rent  from  that  which 
underlies  the  sy^tem  of  private  property,  leads  to  no  clear  con- 
clusion as  to  progression,  (iranted  that  the  rich  should  pay  on 
the  basis  of  ability,  the  (luestion  remains,  how  is  that  "al)ility" 
to  be  measure(l?  Does  their  ability  increa.se  in  exact  pni- 
porticm  to  their  incomes,  or  more  than  in  i)ro(M)rtion  ?  Thos(> 
who  advocate  ability  or  faculty  as  the  just  principle  for 
apporticming  taxes  usually  come  to  a  conclusion  in  favor 
of  progression.  Vet  their  principle  does  i\ot  necessarily  lead 
to  that  conclusion;  unless,  indeed,  one  feels  that  the  rich  in 
general  are  in  an  unduly  favored  |)osition  and  that  it  is  equi- 
table to  apply  to  imlilic  charges  adit ferent  rule  frotn  that  which 
holds  in  other  atTairs. 

The  same  sort  of  didiculty,  and  the  s;ime  inevitable  harking 
back  to  the  fundamental  (luestions  of  social  justice,  arises 
from  ai  other  i)hrase  much  used  in  these  discussions  ;  nanjely, 
that  taxes  should  l)e  so  lcvie(|  as  to  bring  "etpiality  of  sacri(i<'(«." 
Unflinchingly  applied,  this  principle  would  lead  to  high  pro- 
gression in  taxation.  Take  away  half  the  income  of  a  |)oor 
man.  and  the  sacrifice  imposed  on  him  is  vastly  greater  than 
when  you  take  aw.iy  half  the  incotnt'  of  a  millionaire.  In  the 
ca.sc  of  the  pool  man,  ta\;ition  would  exact  what  is  •  tial 
for  life  or  for  me;iger  cmiiforl  ,    m  that  of  the  rich  i  only 

the  means  for  luxury  and  ostentation.  To  bring  about  eciuality 
of  sacrili<'e,  you  must  tak<'  awjiy  a  much  larger  proportion  from 
the  millionaire.  Hut  the  fundanu'utal  (juestion  recurs:  why 
e(|uality  of  sacrifice  liere,  when  in  other  matters  no  such  rule 
is  followiMl'     I'lHiririicy,  not  sacrifice,  is  tl\e  dominant  principle 


|g:^^-^g^gj^rjg^smi^^  _i:-,r.M^^ 


k  ^i 


*'i  i 


'II4     ill* 


,^  TAXATION 

4yu 

..      •,    .•  T^  -vTmlv  a  principle  of  equality  of 

in  existing  distribution,     ^o  apply  a  p        1  ^^^^_ 

sacrifice  to  problems  of  taxation  (wh  ch  c-      -      «    ;         .^  ^^ 

^unities founded <';; -'^'y:'";^^;;;,:^:"  ^    l-;Ukin.; 

.aniit  that  the  w..r,n,o^^-^^^^^ 
that  is,  to  undertake,  in  tins  im 

reformation.  j^^^.,f  ^.i^h  re4;ard 

§  3.   This  same  ins,.t..  t  ^>"^^*"»" /^  perniauout  inc<,nu-s 

to  another  .nuch-d.l.atod  pomt  .    -^-^^"J  j,,  ^j,, 

literature  on  taxa   -^     >•   P}    -  ed  incomes  are  those  <h.riv.-d 
incomes  are  much  use<l.     1"   '  j,,^  ..^^^rest   or 

from  income-yieldin.  1-1-      --    ^t^.  ^ .        .^^^^^^^^^  ^^^ 

^^^rd^iL  m  .ration  Wt..^^^^^^^^^^ 

-■ -■'■'T';^\:::'u\  ..  .■i::-i...nv,.r.,,,» 

„,,„,„,,„.„,„,as,.l,.„s         1'    I       ,,,„,„„.„,, ,.   a 

" '■■•': ;;:  ;;,:;:;:-;;:;:i;::::  -  ■;.>  ^ 

ohhpitmn  not    to    um    tlu    ^l  ,,,^  .,,,ie  for  the  future 

,omeconMder.d,leport,on.     .^^^  J      ,;.,  v,s  present   in- 
use  of  wife  ..V  children,  is  v.rtu.Uv   no  part  01  i 

,11  l.itor  .i  out  ol  t he  Mvoini'  of  the  do- 
.„„„■  1.  .ill  I.."..""  I»>  \.,^,„,  .,,,„,  „.,,„„  i,  n-a-ho. 
p,,,,,,,.,,,.      .......a...a..         .  -^^^^^^_,    ^^,_,_ „„ 

,1„.  I,,,„.|aaar„-.    ".■  .1.  al"  "     •  .,  |„„„|,, 

''ir:::^"::;:i: :»::-: :-'"" -■■""; 

then  ni(  n    i     "  •     ■      i    i  .  (»„>  <.inie  t  imi?,  and 

r''::;i;r'rr;:;i' ;:;"::'""".----- 

Ins  ^aviuKs  .il'«o   nu>        ^ ^^^    ^^^^  ^^^  ^  ,^  ^^^^^^^^^  ^,^,.^,^^^^ 

hut  he  is  not  so  iiKeiy  in  ,)•.:;  ;:-.-.    i-  ,',.  his  heir<      On 

.ince  this  parses  on.  prvHumuhlv  undun.iushed,  to  hi.  hn.  . 


f^'r^-'-.v-^:' 


■!-»■^^■»•^"f^•^.   >*— 


nii 


PRIN'CIPLES  UNDERLYING  T.LXATION 


491 


8ueh  grounds  countries  lev-ying  an  income  tax  often  permit  the 
deduction,  from  the  amount  jnima  facie  taxable,  of  certain 
sums  paid  out  for  Hfe  insurance  promii:  n.  The  sums  so 
all()\ve<l  for  are  Hmited,  and  only  unmistakoablo  saviu^s  ouL  of 
income  (evidenced  by  insurance  premiums)  are  considered ; 
precauti"-  of  this  sort  InnuR  necessary  to  j)reveut  the  mitiga- 
tion from  becoming;  a  means  of  evasion.  But  th(>  principle  of 
lesser  taxes  on  unfunded  incomes  is  thus  recognized,  and  recos- 
nized  on  the  i)recise  ii,round  of  not  taxing  sucli  sums  as  are  no 
elTective  constituents  of  present  income. 

The  common  practise",  howin'er,  of  taxing  funded  incomes  at 
a  higher  r.-Ue  hardly  rests  on  this  ground  It  rests  probably  on 
the  same  att  it  ude  tow  ml  s')cial  problems  as  the  common  acquies- 
cence in  progri'ssive  t'lxes, — on  a  half-unconscious  admis- 
sion that  justice  does  not  call  for  identical  treatment.  Funde(l 
inco'ucs  stand  for  the  leisure  cht'S,  —  for  those  who  contribute 
nothing  directly  to  th(>  cduununity's  resoin-ces,  but  live  on 
secure  incom  "-yielding  jiossessions.  The  thick-and-thin  de- 
fender of  tilt"  existing  order  will  indeed  say  thiit  th("se  incom("s 
are  as  just  as  the  income-  of  tho-^e  wiio  now  work.  Int("rest 
and  r  *  an"  ih  worthy  and  as  defensible  a«  any  other  .sorts  of 
incom.  ,  ,ind  discrimination  ag;iin<t  them  by  higher  rates  of 
taxation  is  an  unw,.irante(l  admission  of  lack  of  justilicarion. 
The  -ontention  is  as  uiianswer;d)le  as  is  the  similar  argument 
ng!u..st  progressive  taxes  on  the  rich.  But  most  p("rsons,  though 
tlii"y  do  not  formulat("  their  conclusions  with  care  or  accurai-y, 
feel  thiit  «om("how  income^  derived  from  labor  do  have  a  more 
solid  justificntion,  imd  tli;it  the  leisure  chiss  incomes  tlo  stand 
on  le-^s  d."fensibl("  ground.  It  may  be  right  that  soim^  fortuniitc" 
individuMU,  and  their  descendants  for<>ver,  should  live  in  leisure, 
without  doing  fi  -tmke  of  work.  Hut  '''is  ilo("s  not  s.eni  right 
ill  till"  s^nii'  degree  !is  "e.'i-ning"  your  living.  Hence,  though 
complete  confi-;e;ition  of  funded  iticoines,  through  t.ixation  or 
any  other  mnchinery,  would  be  eond("Mn\ed  by  the  aviniue  tnan 
as  "dishonest"  or  "soei.ili-lic,"  some  coni-ession  fo  the  critical 
and   refornmig  spml    is   matie  by  ajiiiroving  higiiei    iax<s  on 


1  ? 


'■^^l 


492 

such 


TAXATION 


mless  there  lu.  couc-ssiou  of  this  sort  au.l  ou 
,,,         .:rth.t:.Uurouna|orth....evalap^^^^^^^ 

;;:;ot:;..h.r..on.....or.^--^^^^^^ 

.na  of   higher  t.x.tK.u  c     fu^u^d  ^         ^^^^^^^^^^   ,^^,,,,.,    ,, 
consistent,   ou   u   Uunk   ^annssion  T lie  only 

-t-r  >  •r,r":i.r';r ::;": --"-- 

,„„urf,  -""•"•    ;f„,;„  „,„„  ways  ,owur,l  .1.-  »a,",. 

,„,,  „,.  ,„„  ,,,.„...     A'u       -  ^.,.^,,,„„  ,„  ,„„. 

aoul)tinK  the  wisdom  of  siuli  imasun 
:;;;;;^ith.reate.utionu.tho.app^-a.^ 

son.  aUheuhies  of  adnn.ustn.Uc^  ^^^^ 

of  applying  progressive  ^^^^^^^'^  ^^.^  ,,,,r  on  a 
They  vary  with  different  sorts  '>^  ^^  ^  ^^^  ,  J  ^,,,  ...e 
,onsiderationof  partienhirlev.es.     T.et  att.  ntum 

to  son.e  ,nestions  of  V^^^f^  ^^^   ,^^^^^,,.,  ^„^.„,,i,ied 

ProenWive  taxation,  so  lar  as  n  an. 

,,,,,K. ,..«.....;..;  ;;;;;;:v;;:,::;;,":;,,,, ,,. «,«.:,>. 

,vi,h  .!«■  oa.,*,.     ■■•'•'      .;,,„,,,; ,,rf,t.v  in„.l,.T  way», 

ot  rrfonius  t,.|,r..in..(.'  ll»  mitiM  "  '  ,;,,,     „,„,|  (ac-imi-s 

:r:;;:.:r  :-■"-• ^^ ^  •-;:-:":;::;:: 

mail'  pf'>l'l»-     lronn>M>i  ;,„.    ,,i,l  >i..l   .nliiw  l" 

(„r  ,„„„.T.y)  s„l..|y  a. ;.1...B    ••  -';••,;,„.,  „„,.,,,,,.  ,„ 

,„,.-,„i ,......,  .s  1-  ■'"■"•■;'"»""«     ,  : ,  V,  ,.(  - u... 

:::s  :,,;::■:";;:-:" -,,:::. --.■ -- 

sive  taxation  on  the  has,-  of  '1"   '>'•"'""  ^n .l...r..  the 


aEM_ 


PiUXCIPLES   rXDERLYING   TAXATION 


493 


in  objectionable  ways.  The  principle  seems  clear  enough : 
are  the  inequalities  such  as  are  necessary  to  induce  activity 
that  is  advantageous  to  the  community  as  a  whole?  Given 
the  institution  of  private  property,  with  all  the  motives  and 
ambitions  which  are  j)urt  of  it,  and  a  great  range  of  inequalities 
is  in  tiiis  sense  advantageous.  Interest  is  not  to  be  disj)ensed 
with,  nor  tiuit  return  for  natural  agents  which  is  indistinguish- 
ably  commingled  with  interest.  Salaries,  professional  earnings, 
business  ])r()fits  in  tlic  strict  sense,  are  inseparal)ly  associated 
with  the  exercise  of  tlieir  faculties  by  those  who  earn  the  in- 
comes. The  fullest  activities  are  promoted  In  letting  them 
earn  all  they  can;  ami  the  greater  the  competition  thus  pro- 
moted between  them,  the  more  likely  is  it  tliat  the  community 
tvill  be  amply  supplied  with  useful  services.  Tax  no  such  in- 
comes on  the  ground  of  their  size. 

But  to  earmark  tlie  incomes  thus  "legitimately"  large,  and 
to  distinguish  them  from  the  "illegitimate"  incomes,  is  an 
extremely  difficult  in.'itter.  The  law  must  deal  with  unmis- 
takable facts  ;  it  cannot  l)e  based  on  general  principles  and 
rough  approximatioUL..  But  the  conclusions  of  economic 
science,  above  all  as  to  the  great  social  (juestions,  are  I'ssen- 
tially  in  the  nature  of  rough  approximations.  What,  for  ex- 
ample, are  "illegitimate"  profits?  How  deline  tliem  in  such 
manner  us  to  make  them  sul)ject  t(»  special  taxation?  We 
may  be  certaiiv  that  there  are  such  gains,  due  to  chicanery, 
swindling,  browbeating  of  the  weak  and  inexperienced.  But 
how  separate  them  sharply  from  the  profits  secured  in  ways 
advantageous  to  the  community  and  in  accord  with  its  accejjted 
standards  of  right  conduct  "!  To  apply  any  sort  of  liscrimi- 
nating  taxation,  without  bearing  too  hard  on  the  sp'-ings  of 
energy  and  enterprise,  is  impracticable.  The  only  course  ()j)en 
is  to  deal  with  the  causes;  to  protect  the  weak,  to  elevate  the 
plane  of  competition,  to  improve  the  law,  to  i)r)secu(e  remorse- 
lessly the  guilty. 

Certain  kimls  of  funded  income  are  marki'il  ofT  more  sharply 
aH  not  essentuil  tor  tlie  workmg  of  the  individualistic  system, 


494 


TAXATION 


1-  1  r  fit  for  tax-ition.  Such  are  urban  site 
and  therefore  pecuUarly  ^'  :'[]'^2  ^.,^,.  ,.,„ts  which  are 
rents,  or  rather  those  -:""*r:;i';  , ^  -ests  •  Monopoly 
not  protected  l,v  the  P--'^'*;  ^;;  t  tr  thev  are  as  .U.h- 
prohts  are  in  the  same  chi^.     Off  n.  it  .s  tr  ,;  „ 

tlKTc  arc  <-a»re  »l<ii  iiii  ^^      , 

,ivo„  ,1,0  ,„o„«p..ly  o    „.  ..  ,-K,  or  ^^  .  ,^  .^  ^,^^^,^ 

r,.„,pa„y  Ih,-  ,no„o|»lv  ot  s..ru„K  .,  <it. 

the    nvestment  shall  i>e  (uvuuu  ..fiv"  or  a 

„.i.« ,...!,- '-"!■'' TM"'r.:tlo,.:u.,. 

r.  1    ...  "     Til."  iiiine   s    inmaterial;    it  is  m  l^M  in»  » 

.,::;:,,,  u,,,:;.:- ,i,..„i..n,,v ,.,.., .ri„.;„......rr.™v„„ 

;,-,.q„»ii.y  >vi,w>  '•",'»" "''■"'"";::;;,:';:'';,.«  pra.,i.-ai,i» 

""'''''1;;:,;:'::   ,™.r,,r,.n«.',,. -tof 

"""■„        rap.'-"-.  .'-  >vil,  »..m  n„  si«„i.i™.,t  .1,.- 
'     '  V  m  ,„.■,.,„.'  larKo  in  am,.,in,  will  sn,.,n  ,o  then 

'"'"""■       ;,;        .;       '^         an   inc,.,„,.  ol.i.-i..nal.l..   i,.   ki-'. 

,„,„Hy  ht  ohjee,.  of  taxation.  J  ..r.nsthen  tlie 

,.n,.res.ve   t..v...on    .  U  _^^^  ^  ^^.,^^^^  ,,.„,^^,i. 
The  OIllv  (lUf-Moii  will  lie  now   l.ir 

t-..faan.inis,ra„on,t,nus,encouu..^    ,,l  to  aitTerential 

J,.    Stili  :uiotl,er  MUiMioii  an....  ..tl.  1  MhU  ^^^^^^  ^.^^^ 

or  pronressive  taxes  on  luii.i-a  mewmr-. 

M>„mi,.r-ll,."W  V,<'l..il,tr  tl,  §5 


W^MM: 


^i;^^^^M;;^"?A'^^»^^^M-^>^: 


PRIXCIPLES  UNDERLYING  TAXATION 


495 


the  application  of  progression,  not  accordins  to  tlu'  source  or 
kind  of  funded  income,  but  purely  accordinj^  to  its  amount. 

The  essential  j^round  on  which  interest  can  be  defended  is 
that  the  return  is  necessary  in  order  to  induce  accumulation. 
Saving  is  onerous  and  will  not  be  carried  on  unless  tliere  is  a 
return  on  investments.  Hut  we  have  seen  that  tiiis  is  by  no 
means  tin-  exact  situation  with  regard  to  all  savings.  There  are 
many  intra-margitud  savers."  .\s  to  these,  the  appropriation 
of  part  of  their  income  by  the  state  would  not  les>en  accumu- 
lation. The  same  principle  is  applicai>le  as  in  the  case  of 
rent  proper.  A  tax  on  rent  falls  delinitively  on  the  owner,  and 
has  no  further  efTects  on  \\w  supply  or  the  utilization  of  the 
source  of  rent.  From  this  point  of  view  there  may  be  ground 
for  progressive  taxation  of  large  funded  incomes. 

Those  whose  means  are  large  almost  always  enjoy  some 
"saver's  rent.'"  They  may  secure  say  four  per  rent  on  their 
investment.s  ;  liut  they  would  maintain  the  investments  intact  in 
almost  all  cases,  even  though  they  got  only  two  per  cent.  The 
capital  sum  i)eing  large,  a  comfortalile  income,  perhaps  a  hand- 
some income,  would  still  be  secured  at  the  h)wer  r.ate.  Katlier 
than  forego  this  incotne,  accumulation  would  be  maintained, 
and  capital  would  remain  undiminished. 

The  same  reasonin'/  would  apply,  of  course,  in  all  cases  where 
there  is  sa\'ei's  rent.  TIhim'  who  save  piiiuarily  iii  order  to 
make  provi>ion  for  the  uncertainties  of  the  fiituri',  for  old  age, 
for  wife  and  child, en,  unuld  cniitiiii:e  to  do  mi  in  large  measure, 
even  though  intere-t  rates  were  nnuli  reduced,  na\ ,  wi|)ed  out. 
The  appropriation  through  tax.ation  of  a  i)art  of  their  incdiuc 
from  accumulations  would  not  cause  a  decline  in  soei.al  capital. 
Rut  in  these  casi'-  there  i-  not  conn  not  ily  the  degree  of  ine<|Ual  it. \' 
which  givi's  rise  to  the  demand  lor  differential  or  progressive 
taxation,  (Ireat  ine(iuali(ies,  sueli  ;is  ^.eiMi  incou  isteiit  with 
the  democratic  and  e(|ualizing  spirit  of  mir  time,  ariM'  from  the 
very  large  propc-rties,  whii'li  are  iiardly  ever  accumulated  merely 
because  of  a  ijesire  to  provile  for  the  future.     Social  ambition, 

I  ("iillllMl.'  Uniik  \',  CIl:!!]!.  I-  :i',   55  .'    1. 


I J 


,'% 


N 


w. 


\  r 


496  TAXATION 

f  *^r°:e.hr;o«  which  .eaa  their  do,oo„<iant»  t.> 
love  ot  oa^e,  are  the  ^^^  ^^^^^^  ^^.^,^y  „„j 

maintain  tlie  fort  ra...     l\   lu  diminution  of  the 

eau^e  .n.^airment  of  the.r  """^f  "  ^.^^^'^r^roduetion 
sources  on  win*  the  community  s  apparatus  o    . 

''T''"'        I    like  these   progressive  taxation  of  large  fumW 
„„  P<"""';  ''':  .^  .^;;.'„^,„,cated,  that  is,  it  one  frankly 
'"'T.he'v    vtltai  ine„naUt,es  in  wealth  are  undesir- 
aeeepts  the  view  tliat  gri,  i    ,,„.,;.„  „,  other  means,  »o 

„,,,„,  „n,l  should  he  lessened,  '»  ':"^»  ™  "         ,„,  th„  eom- 

'-  -  ""-,  '■""'*'1T1I     aJ  te  P-U.le  undesirable 
„,um,y  can  he  avoid  d^    '"         -^;.„„;„„,  „„  the  strict 

r"'T  V  ;■.  r™    no  Chech,  in  fact,  is  to  he  ex,K.cted. 
n"i.  ;:,:::  ;:*h.'....«rahle  cons..uences,  hcn^ve,  ar,» 

'"  --'t:  Tir  trs:  tr:.^  ■  othe'» 


^ 


mmm 


m?^m&^mm. 


1 


CHAPTER  07 


Income  and  Inheritancr  Taxes 


§  1.  In  the  i)recoding  chapter  thi;  prol)lem  of  justice  was 
treated  as  if  all  taxes  were  paid  out  of  income.  And  this  in 
the  end  is  the  case :  ultimately  all  taxes  are  derived  from  in- 
come. Though  many  taxes  are  levied  in  the  first  instance,  not 
with  respect  to  income,  hut  with  respect  to  lands  or  houses 
or  commodities,  these  taxes  fall  eventually  on  some  one's  in- 
come, thoufjh  not  necessarily  on  that  of  the  person  first  charged 
with  their  payment.  There  are,  indeed,  taxes  whicli  may  con- 
ceivably cause  a  diminution  not  of  an  inilividual's  income,  hut 
of  his  capital  or  his  accumulated  jjossessions.  Such  may  be  the 
working  of  taxes  on  inheritances.  These,  however,  are  effects 
not  common  in  modern  communities.  There  is  no  serious 
deviation  from  the  truth  in  saying  that  all  taxes  are  derived 
from  income. 

But  though  taxes  are  paid  out  of  income,  a  comparatively 
small  part  of  the  public  revenue  is  secured  by  ilirect  levy  on  in- 
come. Sonie  countries  have  no  income  taxes  at  all.  Even  those 
which  have  fully  devcl()i)ed  income  taxes  secure  only  a  moder- 
ate fraction  of  their  revenue  from  this  source.  Moreover,  no 
country  endeavors  to  tax  all  iiK'omes  directly.  Income  taxes 
«o  nomine  are  confined  virtually  to  the  prosperous  members  of 
society.  Most  of  those  who  earn  wages  by  manual  labor  are 
not  so  reacht><l.  Their  incomes  are  alYected  by  other  taxes 
only,  and  in  ways  of  which,  as  a  rule,  they  are  but  dimly  con- 
scious. 

It  follows  thai  the  pro??!ema  of  juKtii-f-  in  t;i\;itiun.  dealt 
with  in  the  last  chapter,  are  to  be  considered  with  reference 
VOL.  II      2  K  4U7 


H. 


:'  n 


1-  II 


m?mP^%n  l^<¥mi^¥m^*i^^^^'. 


498 


T^VXATION 


,  r    ,  is  ..,„ir..|y  ,...s«mK.,  t,.r  ,.xa.np...,  .I,a.  mron,..  .axo 
:.U  ,..  p,-.«r.,s,v,..  y...  .1...  .ax  s,.s...,«  a,  aw*    >  -    »• 
\.  ,vi;i  ,,n-s,.„tly  apL-ar,  a  ffroat  n,a,.y  sort-  ..t  t.x.s  m   v 

'--■''■'-■"•i;:c;;wrv;;:r::;;"r^". 

"    th,.  iaoom..  of  ,ho  latf.'  ^hoaU  1,.-  prosr.-.v    .a  .,d, 
.  »,e  .hnple   proportioaality  for  .1,..  «-  J^.™   -,„; 
,vl,„l,.      \Vl„.<laT  this  is  in  tact  tho  .'as,-  f..r  tla-  lax  s  st.m 
7     „iv,.„  ........try  is  .•xtr,L...ly  .lilli.ult  to  ..take  oat;    so 

l^rui      s    i      t  .i.aa„.  ...io.-t  of  o.aay  ot  tla.  ,ax..s  .■om- 

r,  ,1   "  son,,l  to.     lift  tia-  v..ry  ..xis...,a...  of  tla.  „uos„o„ 
I     iJ  ua...rtaialy  of  tl,..  ausw,.,-,  sl„,w  tl.at  piosr-ssio,    as 
r'axl-s  l,.vi,,l  .lir«.tly  o„  incom..    is  oaly    part  of   a  .naeh 

'°r,r;i;''i'"s,  tt.  ...sp,....  co„»nu,«  pro.n.ssioa  is  spociaily 

tv...  ,■■,-,■  ,.f  otli.T  tax.'S  it  is  loinvaU'cl  aiul  .■va.U-.l. 

,2    •  ll    ia,i.a,i..a  of   i.tco.nc  ,ax,.s  to  tl.o  ,.o,„para.,v,.ly 

„„,to.,lo  arisos  iapraoti™  froa,  tia-  fad  ti.at  tl.o  tfoul.l..  .>n,l 

r„V    ot  .lirool  lovy  „.ak«  it  i.apraotioai.lo  to  .oaoU  s.nall  ,. - 

T,  ,.„sts  ,  t  L^ast  as  i.i.l.li  <o  o.lloot  an  Ma-..i«..  tax  of, 

rt  or        :.:.,:.' t.avi,„aaiaoo,„co<..™as 

„  o,a.  h!.vi,.s  aa  i...-o..a.  "'  M"'^    '«  ";»>'  T^^'  >;"-* 

cost  tporo.     T1.0  rov «■  in  <l.-  ""<■  ™-  '»  "■"    """"  "»  I'"' 

r,.  ,1,0  o,l,or.     -l-o  ..oll,.,.t  froa,  .aiHioas  of  .„rl<,„si"fn  a 
I  hrs  or  a  Lav  sl.illiaBs  .o'l,  w.,,,1,1  l,o  p..rl.aps  aot  anpos- .  .lo, 
,         '       .  ..., ,t,.  ovooasiv,.^     If  Hay  an-  to  l,o  n.a-l„..l  at 

;;,:;;;;;,;.:,: sin.,, ti,,-r„-,.y,n,,stt,of ".■.aa-i.- 

i",..x,a„pt,..l  front  ittcona.  taxation  in  .a,.st  .ountrtas  a  nnatn.unt 


.fSC^Siii 


^v^^.  ^^fi^:^si^^2?^'f^^^ 


mms^ 


■^ 


INCOME   AND   IXHERITAN'CE  TAXES 


499 


which  is  above  ordinary  working-class  income  and  above  the 
average  income  of  the  wiiole  people.  In  England,  incomes 
under  £100  .re  exempt;  in  Prussia,  incomes  under  900 
niurkti.  In  the  United  States,  when  incomes  were  taxed 
during  the  Civil  War  period,  only  those  over  S600  were 
chargeable. 

This  limitation  has  often  been  explained  and  defended  on 
social  grounds.  The  poor,  it  i.^  said,  and  those  who  have 
barely  enough  to  live  on,  should  not  bo  taxed.  Obviously,  the 
minimum  of  subsistence  should  not  be  taxed ;  or,  to  speak 
more  accurately,  the  atteni])!  to  tax  it  should  not  be  made, 
since  tlie  very  term  implies  that  it  cannot  be  reduced  by  taxa- 
tion. When  people  talk  of  not  taxing  the  minimum  of  subsist- 
ence,  tliey  conunonly  have  in  mind  something  as  variable  as 
the  living  wage.  The  demand  for  the  exemption  of  the  lowest 
tier  of  incomes  nsults  from  the  same  state  (^f  mind  as  the 
advocacy  of  progressive  taxation, — dissatisfaction  with  existing 
inequalities  and  desire  to  lessen  them.  Unfortunately,  this  feel- 
ing does  not  lead,  so  far  as  taxation  is  concerned,  to  any  con- 
sistent results.  Those  wlio  possess  only  tlie  "minimum"  or 
the;  "living  wage,"  though  exempted  from  direct  levies  on  their 
income  are  in  fact  tax<(l,  and  often  taxed  heavily,  in  other 
ways.  It  is  only  when  a  projxtsal  is  made  to  reach  them 
overtly  that  people  balk,  and  insist  on  exemption.  In  the 
actual  arrangement  of  the  tax  system,  benevolent  phrases  of 
the  kiml  cit(>d  are  used  to  ex])lain  and  justify  exemptions  which 
in  fact  are  due  mainly  to  tlie  jiractical  ditliculties  of  reaching 
small  incomes,  and  (in  democratic  countries)  the  fear  of  irritat- 
ing millions  of  voters;  whereas,  not withstamling  the  i)luaseH, 
ta.\es  which  reach  tlie  masses  in  unoi)trusive  ways,  are  levied 
on  a  large  scale  witti  little  ajHilogy. 

Considered  as  a  matter  of  principle,  it  is  by  no  me.Mii';  desir- 
able that  the  workiiigmeu  as  a  mass  shovild  not  be  sul>.iected 
to  taxes.  Let  tlie  t:ix<'s  be  moilcrate,  and  even,  if  you  please, 
degressive  ;  tliat  is,  lower  and  lower  in  ];ropi;i1ion  as  luvomrs 
become  smaller.     But  there  is  no  grountl  for  *'ie  assumption 


ill 


^l 


■,'>■'■ 


SH;  'ii 


n 


ll 

i 

11 

^'Se^x^^H 

Mt 

'i^m 

lm 

a^^M 

m9 

^h| 

fli9' 

H 

i^T-S| 

Hii 

500 


TAXATION 


that  the  mass  of  workingmen  in  advanced  eountnes  have  barelj 
the  'living  wage,"  and  should  therefore  l)e  exempted      It  is 
fit  that  they,  too,  should  contribute  toward  the  pubhc  charges 
It  is  desirable,  moreover,  that  they  should  not  only  pay,  but 
should  be  conscious  of  paying.     Much  would  be  gamed  if  they 
were  not  charged  solely  by  veiled  indirect  taxes.     Even  thou^ 
thev  paid  sums  but  small  in  proportion  to  u^comes,  their  point 
of  ;iew  on  public  affairs  would  be  altered.     Too  commonly,  in 
democratic  states,  they  are  not  conscious  of  contributing  any- 
thing at  all.     Their  attitude  towanl  public  busines.s  is  simply 
that  there  is  a  great  fund  of  money  from  which  employmen   or 
largess  can  be  got.     They  rarely  regard  taxation  as  an  instru- 
ment for  promoting  the  general  welfare.     A,u   yet  this  unfor- 
tunate situation  is  extremely  difficult  to  mend.     Taxes  levied 
in  small  sums  are  not  only  expensive  t.,  collect,  but  are  irn  atu  g 
to  the  payers.     The  legislator  who  gets  rid  of  them  no    only 
promotes  administrative  economy;    he  also  gains  popularity^ 
Even  so  slight  a  levy  as  the  poll  tax  .  a  fixed  small  sum,  sa>  $1 
or  $2  a  year,  on  each  male  adult)  is  almost  impossible  to  ma.n- 
t.in      In  some  CW.man  stat.s.  it  is  true,  such  as  Prussia  and 
Saxony,  the  income  tax  sv.,em  reaches  far  down.       ncomes  as 
low  as  900  marks   are  .-hurgeable    m    Prussia,  as  low  as  500 
marks  in  Saxonv      But    >n  tb-se  countries,   the  go^-ernment, 
though  it  may  b.  admm.terea  in  good  faith  for  the  p.H,ple   is 
not  governmen,   by  the  P.o,>!.        The   pn.h.b.ht.es   are   that 
ll^lJ;  a  real  demoeraey  su.h    num..  lev....  .ill  disappear  even 

in  the  comnrifs  where  t;        D-vpisisi. 

,,,       pr  ■■•ti-    income  taxes  are  levied 

,..    ';    Ml,         of  tli(>  well-to-do  and 

V-    -      -one  of  lUrect  levy  oa 

■,,     of  levy  on  the  scviTal 

-,'(l.      I'he  direct  method 

,.  ( lomian  states,  among 

nio-t  instructive,  as  well 

as  th..  large...     ^  ■■  -^--r  -^n.Ki     .f  .n^.h  ,he  salient  char- 

aetenstic  is    top»«e  .  ^.  -ur^   .s  oxemplihed  by  the  prac- 


§  3.  ReanH«  m  mind  r 
only  on  tho  coniDaratwo^ 
rich,  let  us  .ons.  iertlu 
each  indivKiuai  -  lota;  n 
sources  fr-n  viiirii  tvt 
is  best  (>x(!!i.:iitini  t'-  tw 
,,.u:,.i.    r>,..i._;  .   U     ill      hi- 

WUit  ::      ■    • —    - 


.;•,  ,in'       ^ 

TTTI' "  « — 


INCOME   AND   INHERITANCE  TAXES 


501 


tice  of  England.     It  will  be  convenient  to  examine  first  the 
British  system. 

The  British  income  tax  has  sometimes  been  described  as  a 
series  of  taxes,  in  eacli  of  which  a  special  method  is  adopted  to 
attain  the  same  end.  Wherever  feasible,  tlie  method  is  to 
reach  the  taxpayer's  income,  not  after  he  has  received  it,  but 
before.  Thus,  to  take  the  simplest  ( ase,  th(>  government 
deducts  from  th(>  intends!  which  it  pays  on  its  own  debt  the 
amount  chargeable  as  income  tax.  The  holder  of  consols 
hence  receives  his  income  diminished  by  so  nmcli ;  thereby  the 
tax  has  })ecn  coUectecl.  Every  d<  l)t()r,  whether  private  person 
or  corporation,  is  rei.uired  to  act,  in  substantially  the  same 
way,  as  a  sort  of  a,i;ent  for  tl>e  government  in  collecting  tli(< 
income  tax  from  cn^ditors.  Every  debtor  pays  tax  on  his  full 
inconus  irrespective  of  his  being  burdened  by  debt  an<l  by  an 
interest  charge.  But  when  he  pays  the  stipulated  interest  to 
his  creditor,  he  is  cntithnl  to  <le(luct  the  amount  (say  3  per  c(>nt 
—  whatever  the  income  tax  rate  may  be)  chargeable  as  tax. 
The  creditor  receives  97  per  cent  of  what  woiild  otherwise 
have  been  his  due,  and  thus  his  incom(>  has  been  reached. 
And,  to  prevent  i)ossible  failure  of  the  system  to  work  out  this 
result,  "contracting  out"  i-^  made  voi(l ;  it  is  provided  that  no 
agreement  between  debtor  and  en  'iitor  by  which  the  latter  is 
to  receive  his  interest  without  income  tax  deduction,  sludl  be 
valid.  The  unrestricted  self-interest  of  the  debtor  is  tiius 
brought  to  bear  toward  the  collection  of  the  tax  from  ihe 
creditor.  In  this  manner  the  income  tax  is  s(>eured  in  regard 
to  all  bonds  or  (lel)eiitures  issued  li\  British  corporations;  the 
corporations  jiay  thi'  full  tax  on  their  net  receipts,  but  deduct 
the  proper  luota  fi'om  eaeh  IxindhoMer's  income. 

As  regards  anollier  kind  of  income  often  difficult  to  nvuh, — 


<lividend'<  on  st( 


the  s.ame  principle  is  followed,  and,  as 


regirds  British  corporations,  is  followed  with  ea-e.  The  cor- 
porations are  simply  taxed  on  the  whole  of  their  incoiae,  and  the 
.jj„;.uj,.,i.i„_  i,,,.,j.^  *!>.,  f.,.,.  ;■>  th'it  the  e.e?  e.'!.r!iine'~  !nH!>  which. 

his  dividends  ari.sc  are  diminished  l\v  so  much.     The    com- 


*^y 


'it 


Jli 


i 


m 


502  TAXATION 

parative  publicity  with  which  the  affairs  of  corporations  are 
conducted,  especially  of  large  corporations,  is  a  strong  pre- 
ventive of  fraud  in  their  statements  of  earnings,  and  facihtates 
the  efficient  collection  of  the  tax. 

Again,  as  regards  income  derived  not   from    British  debtors 
or  British  coriK.rations,  but  from  foreigners,  the  principle  la 
also  followed  so  far  as  practicable.     Such  income  is  a  largo 
item  in  dreat  Britain,  whos(>  people  have  great  mvestmen  8 
ia    foreign    regions.     But    these    investments    are    commonly 
arranged  and  manage.'  l.y  bankers  or  other  financial  agents, 
who  often  act  as  agents  for  the  remittance  of  interest  or  d.vi- 
a.nds  to  the  individual  investors.     When  they  so  act,  t l.ey  are 
required  to  pay  the  income  tax  on  what  passes  through    heir 
hands,  deducting  the  amount  from  what  is  payable  to  the.r 
clients      In  this  w;.v  a  suri.rising  amount  is  reachcMl.     Lvasion 
or  concealment  is  virtually  impossible,  since  it  would  rcpuro 
collusion  betw..en  the  agent  and  the  scattered  .lunts.     Ob- 
viously.  the  method  is  inapplicable  wh.'re  remittan.'cs  are  made, 
not  through  a  British  banker  or  agent,  but  from  foreign  parts 
direct  to  the  individual  inv.-stors.     In  su.h  case  tlu'  only  way 
to  reach  the  incme  is  t..  levy  on  the  investor  himsell.  calling 
upon  him  to  make  a  declaration  of  this  income. 

Income  from  land  and  real  property  is  always  n-achcl  with 
comparative  .-ase  in  any  tax  system :   for  land  and  lumses  can- 
not  be  eomrale.1.  and  the  income  they  yield  is  not  .hfhcult  to 
Hsc-rlain.     In  the  lOuglish  system  the  occupier  of  n-al  i.roi>erty 
is  liablr  for  income  tax  <.nce  f..r  all  on  the  rental  value  of  the 
prcmi.ses  ocupicd  by  him.     If  he  is  ..wn.T,  this  ends  the  m^itt-T  ; 
h,,  l,aH  i.ai.l  i.MM.mc  tax  .•,.  what  as  owner  aii.l  oc.-ui.icr  h.-  enjoys. 
If  he  is  tenant,  hr  is  .•nlitlnl  to  .Icdu-  I  fn.m  thr  renl.'d  payable 
,„  „„.  i,,„|i.,rd  the  incomr  tax  on  that  sum,  and  th  •   hmdlnrd 
thus  lin.lH  his  tax  d,.durt,.d  and  paid.     IbT.-,  as  in  th.-  smular 
,,,l,^,i.,ns  b.tw.-.n  d.'!>b-r  an-l  .ir.litor,   ".■..utrmtmg  out      is 

ma.l.'  void  1  •     »  4^ 

S.d..n..s  whose  am..un»  \<  su.-h  as  to  mak.-  them  subj.Tt    o 

incom.-  tax  are  also  readu-l  by  stoppage  at  thi-  source.     Iho 


/J-i      #,JJ  •!.  *^^ffH 


INCOME  AND  INHERITANCE  TAXES 


503 


employer  is  called  on  to  pay  the  tax,  and  deduct  the  amount 
from  the  stipulated  .salary. 

Enough  has  been  said  '  to  show  how  far-reaching  is  the 
methotl  of  stoppage  at  the  sonrc(>.  TIhtc  are,  indeed,  some  in- 
comes which  cannot  be  ko  reached.  The  professional  earnings 
of  lawj-ers,  pliysicians,  and  the  like;  the  incomes  of  business 
men,  whefhtT  shopkeepers  or  great  manufacturers  (so  far  as 
the  incomes  are  not  secured  in  tlie  form  of  <lividends  from  cor- 
porations of  a  semi-public  kind) ;  returns  from  foreign  invest- 
ment which  do  ntjt  go  through  a  British  banker's  hands,  —  these 
cannot  be  tapped  at  tiie  source.  Here  some  other  method 
must  l)e  n^sorted  to,  —  declaration  of  income  retpiired  from  the 
taxpayer  or  iiKpiiry  instituted  by  the  tax  collector.  Hut  nuich 
the  greater  jKirt  of  the  income  ihargeable  with  tax  is  reached 
without  personal  declaration  or  obtrusive  incpiiry.  Three 
quarters  of  the  British  tax  is  collected  without  a  word  of  incpiiry 
or  u  possiltility  of  evasion. 

It  i  ■  ol)vious,  however,  that  this  system  does  not  lend  itself 
easily  to  i)n)gressi()n  in  the  taxation  of  incomes.  There  is 
indeed  a  <levice  for  making  tlie  tax  degressive  ;  that  is,  for  lower- 
ing it  on  modest  incomes,  .uid  for  (tempting  small  incomes 
entirely.  .\s  \v;is  notcil  above,  incomes  under  IKiO  are  ex- 
empted from  the  British  tax.  It  may  ensily  happen  that  a  per- 
.son  whose  total  income  is  bdow  CKIO  may  find  that  his  in- 
come has  been  taxeil  through  stoppage  at  the  source.  He 
then  api)lies  to  the  tax  anthoritie-;,  declar  s  his  income  to  be 
below  tlie  taxable  limit,  and  receives  back  in  cash  wiial  hat*  l»eeu 
r<<acluMl  by  stoppage  at  the  source.  The  same  method  is  ap- 
plied in  alleviating  the  tax  on  modest  incomes,  up  to  UTOO. 
These  are  entitled  to  ;in  "(iliateiiii'nt ,"  varying  I'y  gr;i<iations 
ac<'ording  to  tiie  >i/,e  of  the  income.  The  po.'^M-.ssor  of  an  income 
in  tiiis  range,  if  he  has  lieen  reach.  I  liy  the  machinery  of  stop- 
page   at    the  .source,  al-<o  make.-;  !•  declaration    to    the  tax  au- 

'  Thit  ^krtiti  H  liv  no  iii.muh  <l."<iif!ii  I  fo  nivo  »  full  ;i<-<M>unt  -if  Ihr  Kni|li»li 
iii.c.iii..  tnx:  only  w.  imuU  \m»  Inu  K.thl  ii»  lo  niuki-  vU'ar  thr  imDoiUiw.'  of 
Btiippiim'  lit  tin-  miurri-. 


/  i\ 


M 


I! 


504 


TAXATION 


I'. 


Ji  ' 


thorities,  and  is  entitled  to  reimbursement  to  such  extent  as  w.l 
abate  his  income  tax  to  the  extent  contemplated  by  the  law 

But,  to  repeat,  the  principle  of  stoppage  at  the  source  is  not 
consistent  with  progression.     A  person  of  large  means  pays 
income  tax,  or  rather  finds  that  income  tax  ha«  been  paid  for 
him,  in  a  nun^ber  of  ways,-by  various  deductions  from  his 
rent,  interest,  or  dividends.     He  is  never  called  on  to  declare 
his   total    income.     Only   that    income    which  has   not   been 
taxed  before  it  reaches  him,  nmst  be  directly  ascertamed  by 
the  tax  authorities.    Doubtless,  there  are  persons  whose  en  , re 
income  must  be  directly  ascertained,  such  as  small     rades- 
.nen,  some  lawyers  or  physicians,  possibly  investors  m  foreign 
property.     But    almost   every   person   having   a   consulerablo 
income  need  make  declaration  of  only  part  of  it,-veryhkdy 
of  no  part  at  all.     The  s.i.oothness,  ease,  and  certainty  of  the 
metho.l  of  tapping  the  source  are  inconsistent  with  the  endeavor 
to  ascertain  in  one  lump  the  income  of  ea.'h  taxpayer;    and 
without  this  there  can  be  no  application  of  progression. 

.  ,,.„..,  „...  Kn«.i»h  .u..on>..  tax  ...illation    a.  r.a.,^^  ^  ;Sle!l~ 
.1,.  ...  £m)  ar..  .x.-mi^t  ;   imo.n™  l«two<.|.  XlOO  and  IW  an  u.titlea 
abulltu'..;  l.M. :   Li  oth..r  in..,..,.,  an-  .-nti.!..!  t,.  a..ut..n,..nt  thus  :  - 


Incoinri 
£400  (*  .lOO 
A'.IOO  ui  (K)0 
JLilOO  (»  700 


Abatement 
£150 
£120 
£70 


Tlu.  run  rat-  -f  tux.  cn^.^.^wuiU:  h  lovi-.l  only  -n  i„.-„m.-H  .•xr.H..liu«  t-'^'XJ- 
..w..r  on  ■■..ar V    i n.-.  .fr...  ^'^V.   ,-  ■^«^-  '-■;-       '^^^'JlJ.: 

•-rv:;/;;;;.:;';::::;;: ::::  ;:.'*." ;-.:- 'tv*...  rr.....  > .^^.  r.. 

;-t:..;;;.-v=::;;:;;;^ 

„„  MM.'.'    \W)A)  to  I  »lnllin«  :.  |..  IHV.      It.  ti...  iSmlit.l    "I    »•'!>'  "   *""    •- ^ 

liin!,  nM  1  HJiillllig  -'  Ix'IH  '' 


,L.  I" 


ss 


r50BKfiiit»\  j:/»'-»K:s!i?*(AMi'  u^'itr. 


INCOME  AND  INHERITANCE  TAXES 


505 


Notwithstanding  the  administrative  advantages  thus  secured 
by  refraining  from  the  attempt  at  progression,  the  British  income 
tax  has  been  remodeled  in  very  recent  years  precisely  in  the 
direction  of  progression.     There  can  be  no  stronger  evidence  of 
the  strength  of  the  general  drift  toward  legislation  that  is  hos- 
tile to  inequality.     In  1910,  the  same  budget  that  introduced 
taxes  on  the  rising  value  of  urban  land  established  also  a  "  super- 
tax" ;  that  is,  an  an  additional  tax  on  very  larpe  incomes,  excelling 
£5000  a  year.     Such  an  additional  tax,  of  course,  ciinnot  be 
collected  without  ascertaining  the  total  incomes  of  all  who  have 
incomes  of  this  anunmt,  or  are  supposed  to  have.     Therel)y 
the  income  tax  officials  are  compelled  to  face  a  new  and  difficult 
problem.     They  must  secure  declarations  of  income  from  many 
persons,  with  all  the  difficulties  of  evasion,  concealment,  fraud, 
which  this  endeavor  necessarily  brings.     No  doubt,  the  task 
is  not  so  serious  as  it  would  be  if  a  progressive  scale  of  general 
application  were  established.     Rut  it  is  serious  enough,  even 
when  limited  to  the  incomes  over  £5000. 

§  4.   Turn  now  to  such  an  income  tax  as  that  of  Prussia,  a 
well-administen-d  progn-ssive  tax,  the  model  which  th<>  countries 
of   Contin(>ntal    Europe  are  temling  to  follow.     The    progres- 
sion is  moderate,  the  rate  rising  from  less  than  1  per  cent  on 
small  income  to  4  per  cent   on  incomes  exceeding   100,000 
marks.     Necessarily,  the  whole  of  each  taxi>aycr's  income  must 
be  ascertained.     This  might  l)e  done  in  two  ways,  —  by  assess- 
ment on  the  part  of  the  authorities,  or  by  declaration  rH,uired 
from    the    taxpayer.     Assessiixnt   without  declaration    means 
more  or  less  of  guesswork,  an.  1.  espe.i.-illy  in  the  ca.se  of  larg.T 
incomes,  great   inequalities,  often  glaring  discrepancies.     Ia- 
perience  ha-s  proved   that  without   some  sr.rt  of  ,le.-h.ratinn  ii.. 
tax  of  this  kind  works  as  it  is  designed  to  work,     ll.'n.r,  in 
Prus.siH.  de.larations  are   required,       required  not  only  nom- 
inally, but  in  the  artual  adtuini.Mratii.ii  of  thr  tax.' 

.  I»  our  ,\n...ri.MU.  ,m,.i.h,  do,l,>r,.tm...  fro,,,  tnximy.r,  „r..  ''•■""'"'  '7";'; 
l«w.  for  tho  „ro„or.v  t.»x  .-.-..  l«-l„w,  (■l,u,.t..r  .m)  l«»t  tl,.  r..„mr..|>.rn  .«  n 
..^^Miac  rar..K-  .,..(.,r,-,l :  th..  Ux  U  lrvir.l  l.y  ...liM.utr,  ,  ,  BO..«.*..rk  o„  U.. 
imrt'of  th»  offlriaN      lor..i«„  ^t„,|..„l.  wl k  to  ,i,-  i.  t,.r  of  ..Xu-.n.  an  t« 


y:',3'!'»^^mx'jnvin  'wmR&xKmiii 


r 


:  t' 


506 


TAXATION 


Declaration,  however,  bring,  difficulties  of   its  own     The 
anTount  of  the  levy  is  n.a<,o  to  depena  on  ^  ^    ^r;::  t 
statement.     The  ten.ptution  to  evasion  and  dec  .t  is  pal  n- 
Penalties  for  failure  to  make  a  statement,  or  for  fals..  ^tatcm  n  . 
.re  not  easv  to  enfor.-e.     There  is  constant  .lander  of  demoral- 
;"tion  among  the  taxpayers,  of  easy-going  .onn.vancc  among 
the  officials,  an,l  so  of  failure  to  attain  the  essential  o  ,e.   ,  - 
the  precise  adjustment  of  the  progressive  B.'alo  to  actual  m 
corn's      In  their  working,  income  taxes  have  too  often  been  a 
byword  and  a  reproach.  . 

The  difficulties  <lo  not   arise  nurely  from  evasion  and  dis- 
honesty.    Tliev   r.-st   in  large   part   on  a  resentment  against 
intrin  on  what  are  supposed  to  be  private  alTairs      Many 
a  man  who  will  .•heerfully  ,.  v  a  substantial  tax  on  his  mcoino 
;3iffing  to  subn.it   to  prying  eyes  a  detailed  st.aen.,U^ 
that  incnne.     The  social  philosopluT  may  inch-e.!  sa>  that  this 
i.  an  irrational  frame  of  mind,  nay,  is  something  like  a  confes- 
sion ..f  doubt   as  to  the  justifieation  of  the  income.       f  it 
right  that  one  should  have  a  large  income,  why  ••onceal  at  al 
its  amount  or  =ts  <ource  ?     Rut  men's  ways,  as  they  have  .level- 
.,ned  in  the  centuries  during  whi.h  the  ac(,nis.t.<.n  of  property 
has  been  a  g.vd  of  ambition,  are  not  so  simple  as  this  question 
i,„plies.     A   strong   instinet    of  priva.-y   Las  extended   to     he 
poL..Mnn   of   ..ropertv    and    ineome :     it    is   present,    whet  her 
rntional  ..r  not;   and   it    is  violate.l  by  a  requuvment  of  full 
Maiemeut.  most  of  ,dl  by  tin-  rhance  of  wide  publ.e.ty. 

The.e  various  .lifficulties  .are  not  in-uperable.  An  honest, 
well-trained,  exprrieuced  stafT  of  ollieinls.  and  a  well-framed  tax 
,vste,n.  can  meet   them  with  sufVuient   sueee^s.      Deel.arat loiis 

nee<l  not  be  re.,uired  in  minut,.  detnil,  m.r  n 1  thev  Iv  op,.ne.l 

to  pubhc  in-^pee.ion.  Son.e  <le.ne  of  puLlirity  is  probablv 
„,,,..arv  as  a  safeguard  a^ain-t  tal  e  statement, ;  but  it  need 
,„„  ,,,,,„Mieationtothewo,l.lat  larr-     It  suffie-s  ,f  a  select 

,„i..  K-  a.c.  iv.d  a^  to  ,lu  ,r  ^^..,km,^     In  I  V^^'^""-"' "'^T!": 

of  ll.r  hnv,  ,    il  it-  «.  Oml  n,,.  ..;.I,.1K      I..  I'ru^Mr,.  ;-  H"    ».  xf  M..I.-.  ,  1 

111. lit  of  (licUirBtiitii  I-  iiiIohkI. 


*!— !W!-1P1*P* 


INCOME   AND  INHERITANCE  TAXES 


507 


body  of  local  persons  of  experience,  judgment,  and  established 
position,  arc  enlisted  to  advise  and  cooperate  with  the  per- 
manent administrators.  Th(>se  advisers  must  be  persons  who 
are  likely  to  know  s(  iicthing  of  the  probable  incomes  of  the 
Hcveral  taxpayers,  and  before  whom  tiiey  would  not  wish  nor 
dare  to  make  statements  grossly  false.  A  device  of  this  sort  is 
used  in  the  Prussian  system,  and  is  used  also  in  that  part  of 
the  English  system  for  wliich  declaration  must  be  resorted  to. 
To  go  into  the  details  of  the  several  methods  would  pass  the 
bounds  of  a  book  like  the  present.  Suffice  it  to  say  that  with 
a  proper  permanent  stafT  of  capable  and  tactful  officials,  with 
n  steady  reciuirement  of  declaration.'*,  with  supervision  and 
inspection  not  carrie<l  to  the  stage  of  universal  publicity, 
income  taxes,  even  tiiough  progressive,  can  i)e  administered 
Rucce-:sfully.  Not  a  little  depends,  to  \w  sure,  on  the  amount 
of  the  tax.  The  higher  it  becouics,  the  greater  is  the  danger 
of  evasion,  the  greater  the  difTicuIty  of  preventing  demoral- 
ization. 

§  5.  Inheritance  t.'ixes  present  administrative  problems  some- 
what different  from  those  of  income  ta.xes.  Progression  is 
easier  of  application.  At  tlie  same  time,  the  question  of  prin- 
ciple, -  -  is  progression  riglit  ?  —  prcs«  nts  itself  mori  sharply. 

The  transf(>r  of  property  at  <|eutii  must  be  subject  to  super- 
vision by  a  court,  or  an  .'ulministnilive  bureau  rcsemliling  a 
court,  to  pn-ven,  contention  or  fraud  among  those  who  may  lay 
claim  to  the  ])roperty.  Hence  in  all  civili/ed  countri(>s  the 
making  of  wills  is  <'arefuily  regulc.ied,  and  probate  officials  or 
j\idges  have  uidimited  pnwers  ov(-r  the  winding  up  nf  dece- 
dents' est;ites.  Their  powers  are  exiTcised  directly  on  the 
persons  charged  by  law  with  the  distril)Ution  of  the  estates,  — 
the  exeruturs  or  .■idii\inistr!it(irs.  This  gives  a  convetiient 
opportunity  for  collicting  a  tax.  The  executors  and  adminis- 
trators are  e.illed  on  to  |iay  the  tax  s,  and  not  reliMsed  from  tlicir 
obligations  until  they  h.'ive  I'iven  proof  of  the  paynu-nt.  Eva- 
sion of  such  t.'ixe-.  if  I  hey  are  e;u-efidly  arranued,  is  not  easy. 
Tlie  tax  statute  can  be  drafted  in  such  u  way  that  the  net  is 


i 
I 

r  ' 


I*»\  .^HtHW.-  "H 


508 


TAXATION 


iurisdiction  where  no  such  taxes  are  in  lonx.  .   .        . 

'^^       «  obviou*  po.»«.lo  as  regard,  .he  «voral  .ta^«^ 
n,>in„   Vinoe  it  is   pri.lial)le  that  some  among  them  «UI 
::   l"r     ml  .axes,  or  wU,  ievy  them  only  a.  low  rate. 
n„.         .nore  widespread  ar,.  inheritanee  .axe,,  .he  te,^»«. 

,lu„„g  Me,  ..    ™    >    to       dlr  ^^^  ^_^  ^^  ^^^  ^_^  ^^, 

:::::.:  Ji     er  .l":    h>/«  -.ore  e«ee.ive  o«ae,e  than 
nl     gal   e„uivalenee  is  the  reluctanee  of  property  owners 
o  nar  ti.h  their  own,  even  .o  their  nean'st  and  deare,.      All 
ITar         possihle  n.ean,  of  eva.,io„  are  ot  ™o-e  hkely  U, 
te  res"".e,l  to  in  pro,»rtio„  a.  the  ra.e  ot  tax  .s  h,gh   mo.,  o 
,1  ^  r,    dtts  LI  vivo,.    Ih're,  as  with  n>any  other  k.nda 
:?     :  al»ie  au-  ra.e  i.  ap.  to  h..  tnore  effee.ive  in  praet,.e 
1"  ;™lly  eqnahle,  tnore  pr<Klue.ive  o(  revenue,  than  a  htgher 

""Xn  these  however,  ar..  matter,  ot  administration  and  detail 
Wghl;  im  or.an.  .o  the  h.gis,ator  an,,  .o  '^e  -,«-;."« 
„f  fin-mee    hut  not  ot   vital   eons,.quence    tor  the  pnneipKs 
i,  v^lv"      lu  Keneral,  i.  .nay  !»•  .-snmed  tha.  .here  are-  m, 
.  Ih,e  olleles  to  the  efteetive  levy  ot  inhen.ance  .ax^ 
"  uL  ohstaeles,  in  taet,  than  are  n,et  in  n,eome  taxes.     On 
«li,i1  orin.ililes  shouUi  they  he  trame,l .' 
T  ,     «  nu-.U  and  the  sen.iu.ent  in  tavor  ot  progression  are 

,..^;i,i;  "strong.     The  inh.- , «  < "ir.'J'.'lJ.'lS I 

;:!v::;  without  sorious  .hnlnistnUiv..  .limoulti..  (s-h  an  .n  k^" 
ti'Vcan  1.0  n.,  .•onsist.nt  argument   a«uuv.t    pro«re«.u,n  n. 


INCOME  Ax\D   IXHERITAXCE  T.VXES 


509 


communities  which  try  in  all  sorts  of  othor  ways  to  mitigate 
inequality. 

On  the  other  hand,  there  stands  the  essential  ground  on  which 
the  institution  of  inheritance  rests.  It  is  the  great  engine  for 
the  maintenance  of  capital.  So  long  as  private  property  dom- 
inates the  industrial  order,  the  maintenance  and  increase  of 
the  connuunily's  capital  depend  on  the  doings  and  motives 
of  individuals  in  deaUng  with  their  property.'  Inheritance, 
then,  cannot  l)e  struck  at  its  roots  without  checking  accumula- 
tion and  investment,  anil  so  doing  damage  greater  than  any  con- 
sequent mitigation  of  inequality  could  offset.  Some  offshoots, 
doul)tless,  can  he  lopped  without  substantial  harm.  .Moderate 
taxes  on  inheritance  may  not  lead  to  a  diminution  of  capital. 
They  may  he  paid  gradually  out  of  income.  But  unless  kept 
within  moderate  limits,  they  mean  in  the  ordinary  course  of 
events  diminution  of  individual  capital  and  of  soeial   capital. 

The  only  ground  on  which  heavy  direct  inheritance  taxes 
can  be  said  not  to  press  harmfully  on  the  maintenance  and 
increase  of  capital  is  that  in  mod.  rn  conmumities  accumula- 
tion takes  i)hice  at  a  prodigious  rate.  So  vast  is  the  savable 
fund,  .so  increasingly  strong  are  the  motives  which  lead  to  sav- 
ing, that  something  can  l)e  diverted  from  the  stream  without 
seriously  l(>ssening  its  volume.  Kvidciilly  the  (juestidu  here 
is  one  of  (h'gree.  The  inflowing  acciinmlations  will,  no  doul)t, 
remain  enormous,  even  though  moderate  ('  ■.iicli'ms  i)e  maile 
fnmi  ordinary  estates,  an<l  substiuiti.tl  amounts  withdrawn  from 
the  small  number  of  very  large  e.^t ales. 

Evidently,  considerations  as  to  the  motives  for  saving  and 
luHjuest  have  little  weight  where  there  are  no  descendants  nr 
nejir  rehilives.  'i'lie  powerful  motives  for  accumulation  and 
transmission  to  Ik  irs  or  legatees  are  family  love  and  pride. 
In  collateral  inheritances,  (»r  becjuests  to  strangers,  tlie.^e  play 
no  part.  Hence  taxes  can  be  '•ea.sonal)ly  levied  in  suili  (vws 
at  a  liigher  rate  than  in  ca-se  of  direct  transmission.  That  they 
are,  in  fact,  commcmly  levied  at  a  hiirher  r.itc  results,  doubtless, 
'  {\)mpari"  Hook  V,  ClmiitiT  'A,  |  5. 


i 


ill 


m 


510 


TAXATION 


il 


yi 


i    I 


„,  „  .li.tant  rela.,vo  <"  •'     Jf '.^^  ^„^  transmWon  to  the 
5  0.    Inl  u.lamc    a  j,,  si„,ilar  circumstances 

'ir::.t;:r:i:i:".--»amc»t..ra>on.^^^ 
,,,,„„  ,,„c  cnon,,,  -!;'-rr::™:"r:i:«.". 

pay  at  one  rate,  ^^'>  '^  "^'^Y     ,J     Uoncv  this  form  of  taxation 

'"""  "■"'  "f  '"  "    '  r L'^ic.  c     on-porary  fnancial 

shouUl  not  1.0  rosortod  to  ui  on  or  to  . 

neoas.     Durin.  tho  war  with  Spam.  ^^^^^^^    ,  ,,, 
in  1808  inhoritanco  taxos,  -rX-^^  (-■oon^R/'^  tic  s. 

::r:;.i;:i.:niv"Vca;,,ff,n. ia, ........  to 

c„n,|,cl  r,.«,rt  t.>  cv,-y  |..»il.l,.  ...nrcc  ..t  revenue. 

,.  n, lovci„„.l  .y*-n,  of  inheritance  .axes  ,s      a. 

::r;;rye::;:rr;"rt:rs:::\,avei. 

;;.^,,.,  ,,,,,,,,...,,, ax...     So„u.tin..sth...ar..on<.ollat,.. 
^u^oesi^io,.    only,    hut    thon-   is   un    nuToasn.^    ^'-'-'-^J^ 
Lh  .liroH  HncosHions  also,  .vn  though  ut  u  low.r  rato.     Thus 


^imm 


mmmmm 


Ifl 


INCOME   AND  INHERITANCE  TAXES 


511 


Massachusetts  has  recently  (1907)  taxed  tlireet  successions 
from  1  to  2  per  cent  (according  to  the  size  of  the  estate)  and 
collateral  successions  5  per  cent.  Wisconsin,  to  ^ive  another 
example,  has  taxed  direct  successions  ,i  per  cent,  and  has  reached 
a  rate  as  high  as  15  per  cent  on  large  successions  (over  SijOO.OOO) 
to  non-relatives.  This  form  of  taxation  is  l)est  left  to  the  sev- 
eral states  in  our  country,  for  the  simple  reason  that  their 
financial  resources  are  not  so  varied  and  rich  as  are  those  of 
the  general  government.  The  federal  inheritance  tax  of  1898, 
just  referred  to,  was  sjieedily  repealed,  and  the  way  then  left 
free  for  state  taxes  of  the  same  sort.  These  have  been  levied 
already  by  most  of  the  states,  and  are  likely  to  be  resorted  to 
sooner  or  later  l)y  all  of  them. 

Income  taxes,  unlike  inh(>ritance  taxes,  are  peculiarly  fit  for 
readjustment  from  year  to  yr  .r.  If  they  are  raised  in  one 
year,  all  incomes  hear  the  exli  i  i)urdi'n;  if  !ow(>red  another 
year,  all  get  the  benefit  of  the  reilnction.  Hence  in  dreat 
Rritain  the  income  tax  is  used  as  a  means  of  keeping  the  publie 
receipts  adjusted  to  the  expenditures.  It  is  raised  in  times  of 
financial  stress,  and  lowered  in  ordinary  times.  Obviously,  it 
is  a  necessary  part  of  this  policy  that  in  ordinary  times  the  tax 
should  not  lie  pushed  to  the  maximum  \vl\ich  can  be  safely 
exacted.  .\  margin  must  be  left  for  einergeiicii's.  As  was 
noted  above,  the  Hritisli  rate  has  gone  in  some  iieriods  of  war 
as  high  as  a  shilling  fdurpeiiee  in  the  jiound,  or  ()■;  per  cent, 
as  during  the  Crimean  War  in  ISoo-lS.'nJ.  In  1902-1903, 
because  of  the.^outh  .African  War,  it  rose  to  one  shilling  ttiree- 
pence.  In  times  of  peace  it  has  rangecl  conmionly  not  far  from 
eight  pence  in  the  pound,  orli'  per  cent.  In  Prussia,  also,  the 
income  tax  is  used  as  a  flexible  levy,  but  Hexil>le  nitlnr  for 
local  than  for  state  purposes.  The  Prussian  loeal  bodies  (cities 
and  communes)  s(>eure  a  large  part  of  their  revenues  by  suli- 
jecting  the  itieonie  taxpayers  to  au  addition.il  fax  for  local 
purposes;  they  simply  add  "supplements,"  or  p<'rcentual 
additions,  to  the  state  meome  tax.  in  ttus  w.iy  one  process  of 
assessment  serves  for  the  two  purposes  of  state  and  local  taxa- 


»V 


4 

■pfi 


11 

Ifl 


I 


I 


9»^  ■*^.? 


pS8^**'' 


512 


TAXATION 


'■■  'Sy< 


,l„n  The  local  supplements  vary  from  year  to  year,  and 
ry  in  amllt  pl^e.  a,  Bnan™,  need,  -^-^  "  .^^ 
I,  deserves  to  be  noted  that  these  supplements  arc  large,  nsme 
to  m  Ind  even  to  200  ,Kr  cent  of  the  stato  t.«.  In  eonsequenee, 
h    to,a  t  I  on  an  ,n'„.no  in  Prussia  is  two  or  *ree  ttmes  * 

*- no's;  to'i:: ::?  ,:*  ;iay^r:tr;r:dr. 

used  her  income  tax  more  skillfully.  j:ffi,„itv  has 

S  7    Tn  the   United  States   a   constitutional  difficulty   has 

afflL    th  epolihle  use  of  income  taxes.     The  Constitu  ion 

nlv  des  that  no  direct  taxes  shall  be  laid  by  the  federal  gov- 

:::;'::  eU  when  apportioned  among  th^-^  -     e    - 

w    „       n  h-isis  now  so  inequitable  that  taxaxion  uu 

h   h  defined  "direct"  taxes,  in  the  -stit.tional  se.    .  to  be 
onlv  taxes  on  land  and  on  property  considered    n  mass.     In 
ie  taxes,  thou.h  every  economist  would  ^V^^^  ^ 
"direct"  taxes,  were  held  not  to  be  included  in  that  term  as 
utd  when  the  Constitution  was  framed.     Hence  income  taxes 
r    l^'ed  bv  Congress  during  the  Civil  War,  and  were  V.M 
co"  t    u  ional     But  in  1894,  when  such  a  tax  was  again  m- 
no";    bv  Congress,  the  Supreme  Court  held,  very  unexpectedly^ 
I    an  income  tax  of  the  particular  kind  then  framed  w. 
.-direct"  after  all,  and,  not  being  apportioned,  mva  ul     The 
in  corn    tax  measuk-  of  1804,  as  it  happened,  was  badly  framed 
n  other  ways,  and  its  ...Hapse  was  no  immediate  cause  for 
"r         But  the  permanent  result  of  the  unexpected  decision 
rlinlmlubtn.  precise  exte..  to  which  tbecen^nd 

government  could  resort  to  an  income  tax  m  any  forrn^  Such 
a  tax  with  wide  use  of  stoppage  at  the  .ource,  would  have 
;:t 'advantages  for  the  Tnited  States-  It  ^.uUd  havc^on 
^.cKd  advauuige  for  the  federal  financed  ^y^^^-^^ 
flexible  uiljust.nent  to  the  varyin,  needs  of  different  years. 
.  Compur.'  what  m  huM  IhIow,  in  Chupt.r  OS,  1  7. 


INCOME  AND  INHERlTAiNCE  TAXE8 


513 


In  this  maniUT,  us  just  stated,  the  income  tax  is  used  in  Great 
Britain.  Our  federal  government .  now  levies  no  taxes  sus- 
ceptible of  yearly  change,  and  to  this  cause,  in  large  part, 
must  be  ascribed  the  alternations  of  surpluses  and  deficits  — 
the  one  as  embarrassing  as  the  other  —  in  our  national  budget. 

In  1909  a  tax  (of  one  per  cent)  was  imposed  by  the  federal 
government  on  the  net  earnings,  i.e.  on  the  incomes,  of  corpora- 
tions ;  and  that  tax  has  been  held  to  l)e  not  a  "direct  "  one,  and 
hence  valid,  even  though  not  apportioned.  It  has  advantages 
in  the  way  of  flexibility  and  ease  of  ailministration,  similar  to 
those  of  an  income  tax  on  the  stoppage  plan.  It  is  obviously 
very  different  from  such  an  income  tax,  in  that  it  affects  holders 
of  corporate  securities  only,  and  among  these  again  stock- 
holders only  (not  bondholders).  What  the  future  will  bring 
in  the  development  of  this  form  of  taxation,  or  in  the  levy  of  a 
complete  income  tax  through  amendment  of  the  federal  Con- 
stitution, remains  to  be  seen. 

The  attitude  of  many  well-to-do  Americans  toward  income 
taxes  is  among  the  curiosities  of  economic  thought,  or  lack  of 
thought.  A  multitude  of  intelligent  jiersons  of  means  regard 
such  taxes  not  only  as  inquisitorial  and  demoralizing,  but  as 
confiscatory  and  socialistic.  The  truth  is  that  an  income  tax, 
even  when  administered  by  declaration,  is  no  more  inquisitorial 
than  our  familiar  projwrty  taxes ;  it  is  much  less  so,  when 
applied  with  stoppage  at  the  source.  It  is  not  necessarily 
progressive,  and  is  no  more  confiscatory  than  any  tax.  It  is 
very  odd  that  inlieritance  taxes,  nnich  more  searching,  and 
almost  always  progressive,  never  have  met  with  the  same 
intemperate  opposition.  I'robal)ly  tlie  peculiar  unpopularity  of 
the  income  tax  proposal  among  tlie  ignorant  cou-iTvatives  is 
due  to  its  being  part  of  the  program  of  the  foolish  radicals. 
It  has  been  advocated  in  this  country  alongside  with  such 
matters  as  unlimited  jiapcr  money  and  unlimited  government 
ownership.  The  jjcrvading  distrust  of  sucii  j)roposals  has 
affected  nut  only  the  well-to-do  in  general,  but  tin-  luwyerr; 
and  judges.  These  are  recruited  from  the  well-to-do  class. 
VOL.  II  —  2  h 


s\ 


i! 

i!i 


i'1'' 


'>  s-  \ 


in 


514 


T-\X\TIU:N' 


have  its  prcUulices,  and  do  no    often  rise  above  its  i^oranee  of 

nave        v    .  '        ^  ,,,.,„._i,„>,.e      The  Sunreni.  (.'ourt  decis- 

eeonomic  pnunplos  uu    experu  nee.        nc      i 

ion  of   1894,  deelunn,!;  the  ineoine  tax  of  that  tun.   to  be  un 

:Lmution;d.  uas  aiTeeted  by  tins  .ort  of  Pe-^-^P^^^"^  ^ 

Constitution.ai.w,.iU.oti.ria.n.^^^ 

it  is  anion-  the  poss,l,ilities  of  th(   tutun  tnai, 

tional  eonservative  views  are  modified,  measures  ^-^ -^^^ 

income  tax  will  be  more  easily  passed  and  more  readilj  sane 

tioned.' 

.  An  a.no,u.,nont  to  the  Constitution,  -;'><;f '"^':^'i'^':;' :r':;;«;":i  t 
out  r...tnotion,  was  .uhnuttod  by  ^;-«"- »";""^:   ^U   :>^    ^M,  the  whole 

-*'''-^r'''"^v;::ti r::;t;   .i;:s^ent:r:;i i^wUaso. 

iucoine  tax  proMcm  in  tnc  e  nut  u 


CHAPTER  68 

Taxes  on  Land  and  Bru.DiXGs 

§  1.  Taxes  on  real  property  —  land  and  buildings  —  play  a 
large  part  in  all  mochn-n  tax  systems.  For  long  periods  in  the 
liistory  of  European,  eountries  they  were  almost  the  only 
taxes  :  since  real  property  was  the  only  scrt  of  wealth  which 
could  be  elTectively  reached.  The  ta.\r>  wliich  now  exist  in 
the  older  countries  of  Western  civilization  are  lari^ely  survivals 
or  descendants  from  such  ta.xes  of  older  days.  They  even  d, - 
scentl,  in  a  sense,  from  the  dues  of  th-  feudal  system.  But  they 
have  been  transformed  and  reshaped,  and  tlwy  now  n'taiu 
their  imiiortant  place  in  hnancial  leirislation  for  the  simple 
reason  that  land  and  buildings  arc  du  the  spin,  cannot  be 
moved,  and  their  owners  must  submit  to  whatever  tax  is  im- 
posed on  tluMU. 

Let  US  consider  hrst  the '.ffirts  of  the  taxation  of  ! md  by  it- 
self,—of  land  irrespective  of  any  clu'Mgcs  or  iuiprovenient 
made  !iy  man.  For  the  ])urpos<'  of  cousideriii'j;  this  case,  l<t  i. 
suppose  an  urban  site  of  great  value,  not  iinprovci  by  man,  or 
improved  so  slightly  tiiat  the  imi)ort;iut  ami  effective  eleinr.|t 
in  its  valu(>  is  die  land  per  sc.  Not  inrnM-u.-udy,  in  our  .\ncTi- 
can  cities,  a  lucrative  central  sit(>  is  (x'cupicd  by  a  ouf-slorv 
flimsy  shop,  used  for  retail  trade  and  connnae  "'"j;  a  consider- 
able rental,  -one  very  high  compared  with  the  ..ist  of  e'"ct- 
ing  the  building.  Thi-.  sort  of  utili/ation  of  the  site  is  but  tmi- 
porary,  du(>  to  hesitation  oi  the  o-,vmr"s  part  a<  to  when  and 
how  to  .-^ecur-thc  full  rental  value  of  the  -ite;  or  due  i)n-^,-:bl,- 
to  uncei taint y  in  the  legal  title  and  >nn-vi\\:rn\  unwillin.- 
nes.s  on  the  part  of  any  one  to  make  itnin-ovement-.  .\di  "ik  om- 
monly  unch-r  these  circumstances  a  ciieap  'iram-iiop  i-  eiv>  te,;, 
because  sucli  an  estalili^hment   is  most   sure  to  yield  a  good 

.■)I.-) 


Hi 


m 

■i". 


516 


TAXATION 


}H 


^"1 


rental,  irrespoctive  of  the  neatness  or  attractiveness  of  the 
building  itself.  Assume  now  that,  for  whatever  reason,  a 
vulual.lo  site  is  in  this  state.  Aecor.ling  to  our  American 
practise,  it  will  !»•  taxed  on  its  full  selling  value  as  it  stands,  — 
for  a  large  sum  as  regards  the  land,  a  small  one  as  regards  the 
building.  The  total  tax,  at  such  a  rate  as  is  now  conunon  m 
our  cities  (s:.y  2  per  c-ent  on  the  capital  value),  will  very  possibly 
be  greater  tlwui  the  whole  rental  secured  from  the  shop.  Who 
would  l)'ar  such  a  tax? 

The  own.-r  would  gladly  shift  it  to  the  tenant,  by  chargmg 
him  a  higher  rent.  But  clearly  the  own.-r  cannot  do  so.  Pre- 
.umablv  the  tenant  is  alr.«ady  charged  with  a  rental  commen- 
surate with  the  profit-yielding  pc.ssibilities  of  the  site  as  it 
stands.  The  owm-r  from  the  outset  will  exact  all  that  can  be 
got.  Th<-  tax  will  enable  hiui  t"  get  no  more.  Nor  would  a 
rcluction  in  the  tax  cau.se  him  to  be  content  with  le^s ;  he 
xvouhl  still  demand  an.l  secure  all  t'  it  the  site  was  uorth. 
The  tax  falls  definitively  on  the  ovvnr 

Sui-h  is  the  g.-n.'ral  j)roposition  to  be  laid  .lown  with  n-ganl 
t„  taxes  on  land  per  sc.  They  fall  on  the  owner  una-  fi.r  all. 
They  operate  as  so  much  dimiuution  of  rent.  In  th.-  extreme 
ea^."  a  tax  equivalent  t..  the  full  rental  of  land  can  l>e  exacted, 
without  any  otluT  elTect  than  th.it  of  .lepriving  the  owner  of 
his  income.  If  a  greater  amount  is  a.ssessed.  the  land,  of  course, 
V  ill  cease  to  l)e  used  ;  the  owner  and  occupier  alik<'  will  abaixhrn 
it.  But  short  of  that  point,  a  lax  -m  .'conomic  rent  .-an  be 
h.vi.'d  oil  the  own.r  without  a  lu.ssibility  of  escape  or  of  shift- 
ing to  other  shoulder^. 

This  proposition  re>t>  on  th.>  assumi)tion  that  land  is  "rack- 
rented,"  that  the  owii.'r  exacts  in  rent  as  much  as  he  cnn 
po>siblv  obtain.  Such  is  not  !ieee»ariiy  the  eas.-.  Through 
iu„oranee  or  earelessness,  he  may  In  m  l.„i,Mt  have  it  for  less 
tl,,u  might  be  got  by  \hv  si;  n-,,..,t  bargainin;',,  In  a  country 
liixr  I'.Mgland.  agricultural  land  is  owned  and  managed  for  the 
.„f  i.-:fMet  Inii  ...f  -oeiid  umbi^ioii  as  Well  as  for  iuun.Mliale  i)ecuniary 
return,  and  is  not    iefrequently  let   to  farmers  on  indulgent 


'vrn'^mmmmmm. 


TAXES  ON   LAND   AND  BUILDINGS 


517 


terms.  Under  such  circumstances  an  additional  tax  levied  on 
the  landholder  will  probably  lead  him  to  look  sharply  at  his 
rents,  and  to  take  in  all  the  slack.  TIhtc  is  much  discussion 
in  EiiRlanil  at  present  on  the  expediency  of  taxiuR  ground 
rents  ;  that  is,  of  making  a  direct  levy  on  the  owners  of  sites. 
Those  who  advocate  the  measure  lay  it  down  with  confidence 
that  sucli  a  tax  will  affect  the  owners  only,  and  will  neither 
affect  tenants  nor  raise  the  price  of  the  articles  produced  (or 
sold)  on  the  premises.  They  are  right,  —  jjrovidcd  that  th«> 
land  is  already  rack-rented. 

Consider  now  the  operation  of  such  a  tax  if  it  has  l)een  long 
imposed  at  the  sanu"  rate,  and  seems  certain  to  continue  in- 
definitely. \ny  one  who  thereafter  purchases  ttie  land  will 
allow  for  the  tax,  and  will  pay  a  price  based  on  its  net  return 
aft<T  tlic  tax  li.ts  b(>cn  paid.  This  later  purchaser  will  feel  no 
burden  from  the  tax;  hence  some  persons  are  led  to  speak  of 
this  as  "l>ur(hMiless"  taxation.  It  is  burdeiiless,  at  the  later 
stage,  simply  bccaus(>  tiie  first  owner  has  borne  the  burden 
onc(>  for  all.  In  effect,  a  special  jxTmanent  tax  on  his  site 
amounts  to  the  appn>i)riation  by  the  state  of  .so  much  of  the 
value  of  the  site.  Such  api)ropriation  may  or  may  not  be 
wi.se,  —  this  raises  the  whole  (piestion  of  the  ground  for  private 
property  in  land  mid  for  the  private  title  to  economic  rent. 
But  .!ie  t:ix  is  bunlenles>  only  if  it  has  prevent«'(l  some  part  of 
the  ecoudinic  rent  from  ever  getting  into  any  inilividual's 
hands.  And  this,  to  b'  sure,  is  tlie  e.isc  where  a  substantial 
tax  on  an  </'/  rnlornn  hasis  has  been  coutiMUoiisly  levied  on  laml. 

These  principles  hold  good  of  agricultural  land  as  well  as  of 
urban  sites.  A  t.i\  on  strictly  economic  rent  in  citluT  c;isc 
falls  on  the  owner.  We  have  si>cii  th.-it  in  the  ease  nl  !igrieu!- 
tiiral  land  it  is  piinliarly  dithciilt  to  dri'W  the  line  lietween  the 
rent  of  land  proper  and  the  return  on  ci])ital  invested  in  the 
land;'  and  for  that  reason  the  effect  of  :t  tax  on  aiAiieultural 
land  is  in  practise  not  so  easy  to  follow.  ^  1 1  there  i  an  i>e  no 
doubt  that  there  is  a  vast  amount  of  land  in  old  countries,  and 


i 


i 


518 


TAXATION 


in  the  older  parts  of  new  countries,  wiiich  is  above  the  margin 
of  cultivation  an.l  yields  some  rent;  and  to  all  such  land  the 
propositions  regarding  the  elTects  (,f  u  tax  hoUl  good. 

§  2.  Taxes  on  huildings  present  a  dilTerent  case.  Buildings 
may  he  taken  as  tvpicul  of  improveiuents  on  land,  or  capital 
om'.odied  in  the  land.  The  case  of  buildings  is  instructive, 
because  it  is  coinparativ.ly  easy  t<.  drasv  the  line  between  the 
land  itself  and  the  capital  invested  in  it. 

Suppose  a  situation  removed  us  far  as  possible  from  that 
fo.Kidcrc  I  in  the  i).vvious  section.  Suppos.>  a  buil.ling  .-rccted 
on  laud  whose  value  is  negligible.  Such,  for  example,  are  dwell- 
ings on  the  extrnnc  edg.-  of  cities  or  suburbs,  or  fa.-tory  build- 
ings in  small  villages  or  in  the  open  country.  The  familiar 
"three-.leck.T"  ».f  New  Hagland  is  often  of  this  sort, -the 
thn>e-story  wooden  apirtment  house,  occupied  by  mechanics 
and  other  i.rosperous    workingmen,  in    suburbs  and    outlying 

districts. 

A  tax  imposed  on  such  adwelliii;;  tends  to  be  borne  by  the 
occupi.'r.     If  the  owner  is  al>o  the  occupi.  r.  the  situation  is 
simple   enough;     the   bunlen   clearly  mu.t    be   borne  by  him. 
Hut  if.  as  is  commonly  th    •  ..se,  the  dw.-irmg  is  let  and  is  built 
with  tl.e  ..xpectation  of  letting,  the  bunlen  is  lik.'ly  to  be  shift<>.l 
to  the  occuiiier   (tenant)   in  the  shap.-  of  higher    rent.'     The 
building  will  not   be  i.ut   up  unless  the  owner  has  reascm  U, 
believe  that  th;'  rents  will  yi.-ld  him  th.-current  return  on  invest- 
ment, an.l  will  yield   that    return  n,t:  that  i^,  after    payment 
of  all  ex|)eu-e^.     'Paxe^^  are  reckoned  by  hini  among  the  exiienses. 
If  a  n.-t  retuf    of  live  <.r  six  i.er  cent  i>  locked  for,  the  rents 
„.ill  1 xprrted  t..  yield  a  gro-.  retUHlof  eight.  luue,  or  ten  i.er 

rent.  The  dilTeren.e  ...ver.  depr.'ciat^.n.  .'Npensrs  of  manage- 
m.Mit.  lepair  ,  iuMaanre,  and  not  L.ist  tax-,  if  all  tax.n 
w.Te  remitted,  if  the  publi-'  rev..niie  vven-seeured  111  entirely 
dilTerent  waVN  ro.Hpetiti..n  between  hous(-  owners  an.l  house 
buil.l.rs  woul.l  bring  rei.t^  .l..wn.   An.l,  c.nvers.-ly,  if  tax.-,  were 

I      1  _   I    1 l,i.il.li>pu    IVillllil 

to  be  great  i>   mi.  iiusr.t,  lii.iiM- nv.  at  :    .i::-.     ••  ■ 


!f«MMpM|||MPiP«i 


■^ 


TAXE?i   OX   LAND   AND  BUILDINGS 


519 


sooner  or  later  recoup  themselves  for  this  luKher  expense  by 
charging  higher  rents. 

This  would  l)e  tlie  result  iti  the  long  run.  It  would  not 
noces-surily  or  evt  a  prolmlily  appear  over  short  period.s.  The 
proximate  eaiise  detenniiiing  rents  is  the  supi)ly  of  house  accom- 
niodatious  in  its  rehition  to  tiie  (h-mand.  .V  remission  of  taxes 
would  not  necessarily  lower  rents  at  once;  tiiis  consequence 
would  ensue  only  afte-  tht>  greater  retinri  to  the  owners  hud 
stimulated  an  increase  in  the  sui)ply  of  houses.  Minor  changes 
in  th<'  tax  rate  a  hit  of  an  increase  on(!  year,  a  decline  in 
another -- would  not  cliange  rmts  at  all.  The  owners  alone 
would  he  alTected,  grumliling  loudly  in  the  one  ca.se,  in  the 
other  enjoying  the  remis>i()U  in  (piiet. 

There  are  circumstanci-s  umler  which  the  shifting  of  such 
t  xes  would  not  take  place  at  all.  In  a  city  who'-e  population 
is  (h'clining,  house  rents  are  governed  solely  l>y  the  principle 
of  quasi-rent.  The  houses  are  tin  re,  and  cannot  he  renmved. 
The  cost  of  (Tccting  them  and  the  ordinary  rate  of  return  on 
investinenis  have  no  inlhience  on  their  rents.  The  question  is 
simply  one  of  an  existing  supply  in  relation  to  a  declining 
demand.  \n  increase  of  t.axes  in  such  a  plaec  would  not  cause 
rents  to  go  up;  the  owners  world  have  to  pay  the  taxes  out 
of  their  own  pockets  once  for  all.  After  a  very  long  time,  a 
readjustment  wcnild  doul>tless  take  place.  Ilou.ses  do  not  hist 
forever.  .\s  some  wear  out  and  dis;ipp(>ar,  new  ones  will  not 
be  built  in  a  iIiM:i>in'.j  to.ti  to  replace  them.  (liven  time 
enough,  the  proce-s  of  shifting  t,i\rs  will  indeed  work  itself  out. 
But  the  time  refpiired  may  be  long,  —  generations,  or  even 
centuries.  The  same  Kitu.ition  may  develop  in  a  jjarticulur 
j)art  even  of  a  growing  city.  .*"'oine  sections  may  come  to  he 
out  of  favor;  fashicni  or  eonvenii  nee  may  cause  |)eopIe  to 
move  elsewhen' ;  and  then  the  ho.ises  m  the  hall'-aliandoned 
sections  will  be  in  the  same  po-ition  as  all  the  I.kimx  m  ii  declin- 
ing town. 

Hut  in  a  rapidly  growiim  city  the  i)roeess  of    hiftinir  taken 
piiicr,  noi  UKUTU  "wnii  iiiiUiu"Uiaticai  rxiiCiii"  v^,  •• 


^1 


I 


m 


n  !l:r  loiig 


520 


TAXATION 


run  with  considerable  certainty.  Houses  will  not  be  l.u.lt  for 
letting  unless  this  is  worth  while;  and  it  will  not  be  worth 
while  unless  the  owners  get  the  current  rate  of  return  oyer 
and  above  taxes.  The  increasing  demand  for  house  room  due 
to  growi.^g  population  will  not  be  UK-t  unless  r.-nts  are  high 
enough  to  .nake  good  the  owner's  outlay  for  taxes.  Such  is 
the  .-ommon  ease  in  our  American  cities.  Indeed,  it  is  the  case 
i„  ,„ost  cities  of  the  Western  worl.l ;  for  the  phenomenon  of 
urban  growth  has  shown  its.'lf  in  almost  all  countries.  Taxes 
en  buildings  t(.nd  to  l)e  borne  by  the  occupiers. 

What  holds  good  of  dwellings,  holds  good  also  of  buildings 
lot  for  busim>ss  purposes.     Here,  also,  if  we  fasten  attention  on 
a  case  where  buildings  alone  figure  in  the  <>apital  account,  it  is 
obvious  that  taxes  add  so  much  to  running  expenses,  and  must 
he  recoup.Ml  to  th.'  investing  owner  in  order  to  induce  him  to 
,.rect  th.'  buil.ling.     H."r(>,  also,  the  principle  of  quasi-r(>nt  must 
be  borne  in  min.l.     A  business  structure  once  put  up  is  th.-re 
for  good,  and  its  n-nt  depends  not  on  the  expectations  and  cal- 
.-ulations  of  the  owner,  but  on  the  supply  of  this  particular 
sort  of  accommodation  in  relation  t<.  the  .lemand,-on  the 
a,laptabilitv  <.f  the  premises  and  on  the  growth  and  prosperity 
of  the  citv.     In  a  decaying  town,  or  for  obsolescent  kinds  of 
buildings," rents  will  tend  to  d.'eline  in  any  case,  and  the  owner 
will  find  no  possibility  of  shifting  his  taxes  to  a  tenant. 

In  the  case  of  business  structures,  u  still  further  process  of 
shifting  is  probable.     Just  as  the  investing  owner  regards  taxes 
us  ex|)enses.  and  expects  to  be  recouped  for  them  in  his  rents 
so  the  business  occupier  regards  his  gross  rent  as  an  expense,  and 
expects  to  be  recouped  for  it  in  his  profits      This  is  most  obvi- 
ously the  case  in  ntail  dralings,  where  rent  ..f  the  premises  may 
be  a  larg.'  part  of  the  total  expenses  of  the  tradesman.     High 
rents  for  premises  fthat   i^    for  buil.Ungs       not   high  ground 
r,.nt8)  will  mean  higher  prices  for  the  goods  sold,  and  the  effect 
of  higher  taxes  will  tend  to  b<-  somewhat  higher  charges  on  the 
.,,„5.5i;,;,,;ty  at  hifiie.     Taxes  will  be  very  wi.lely  shifted  and 
dilTused:    that  ia,  they  will  tend  to  1m.  so  difTuscl  in  the  long 


TAXES  ON  LAND  AND  BUILDINGS 


521 


run,  if  competition  is  active  in  the  particular  business,  and  if 
business  profits  conform  to  their  normal  range. 

§  3.  The  common  case,  as  to  urban  realty,  is  not  that  land 
alone  or  buildings  alone  stand  for  the  greater  part  of  the  capital 
value,  but  that  each  enters  as  a  substantial  part  of  the  total. 
In  the  heart  of  a  great  city,  the  site  will  stand  for  more  than  the 
buildings,  even  though  these  be  substantial  and  expensive.  In 
outlying  districts,  the  buildings  will  represent  the  larger  part  of 
the  selling  valvie ;  yet  the  land  still  counts.  Now,  according  to 
the  distribution  between  these  two  constituents,  the  incidence  of 
taxes  will  be  different.  That  portion  of  the  tax  which  is  levied 
on  the  selling  value  (the  capitalized  rent)  of  the  site,  remains 
definitively  as  a  tax  on  the  owner.  That  portion  which  is  levied 
with  respect  to  the  building  tends  to  be  shifted  to  the  tenant. 
Here,  as  in  the  [)revious  section,  we  must  have  in  mind  the  long- 
run  operation  of  the  taxes.  The  immediate  effect  is  commonly 
that  the  owner  bears  tli(>  burden.  Every  parcel  of  real  property 
yields  pn^ximately  a  rental  fixed  by  its  serviceal)leness,  and 
not  din>ctly  affected  by  taxes.  It  is  only  by  affecting  the 
supply  of  buildings  that  taxes  on  them  tend  in  the  long  ••un 
to  be  shifted  to  tenants. 

The  long-<-ontinued  levy  of  taxes  on  a  site,  at  the  same  rate, 
brings  about,  as  w(>  have  seen,  a  decline  in  the  selling  value  of 
the  site.     So  much  of  the  economic  rent  has  In-en  appropriated 
by  the  state.     The  effect  of  taxes  has  not  been  to  raise  ground 
rents,  Imt  to  lessen  the  net  return  to  the  owner.     Where  t he- 
site  is  highly  valuable,  a  tax  at  the  rates  now  con\mon  in  Ameri- 
can cities     -say  2  iHTcent  on  th    selling  price    -  means  the  ap- 
projjriiition  by  the  coiiununity  of  a  very  substantial  part  of  tlie 
economic  rent.     And  where  the  value  of  land  is  rising,  taxes 
rise  in  proportion,  and  some  slice  of  the  imearued  increment  is 
steadily  going  into  the  public  treasury.     If  it  were  nut  for  the 
taxes,  the  net  yield  of  the  sites  would  be  so  much  greater,  and 
their  selling  price  correspondii  u;ly  higher.     The  high  value  of 
!  \'\:\  in  our  hirire  cities  is  tliiis  a  source  of   much  revenue  to 
the  taxing  bo<ly  (that   is,  usually  the  citv),  an.l  at   thr  same 


1 


522 


TAXATION 


h  -■>, 


bll 

Hwi 

^^^B^^H^mB 

iM^QHHBklHl 

■ijm 

I  'i 


I  ;  I 


timo  of  a  revenue  hardly  felt  as  a  tax  hy  any  one.  It  simply 
prevents  the  rent  of  land  and  its  value  from  rising  even 
higher;  and  since  this  is  foreseen  and  expected  by  every  one, 
no  purehaser  sutYcTs.  And  evi.lently  the  same  result  would 
ensue  if  the  whole  of  the  future  rise  in  value  were  absorbed 

in  taxation. 

The  large  and  constantly  growing  revenue  from  this  source, 
even  at  the  jiresent  rates,  accounts  in  no  small  degree  for  the 
extravagance  of  American  municipal  govermnent.  The  busi- 
ness districts  of  New  York  City,  lor  ex.nnple,  are  a  vast  treasure 
house  for  the  tax  collector,  as  they  are  al>u  in  even  greater  degree 
for  their  owners.  The  enormous  revenue  collected  from  th«'m 
in  taxes  makes  possible  a  measure  of  waste  a-.!  corruption  which 
would  be  intolerable  und.-r  taxes  not  Irvio  :n  this  burdenless 
way.  The  same  is  true,  only  to  a  less  degree,  of  our  other  great 
cities,  in  which  urban  rents  an;  also  large  an<l  rising,  and  in 
which  also  taxes  on  sites  are  steadily  productive  of  increiusmg 

revenue. 

§  J.  Whether  a  tax  on  real  property  be  collected  m  the 
first  instan<c  from  owner  or  occupier  is,  in  the  long  run,  not 
material.  The  practise  ii>  the  Tnited  States  is  to  levy  on  the 
owner;  an.l  in  the  preceding  .sections  1  lie  incidence  of  taxes 
has  been  discussed  as  if  this  were  always  done.  In  England, 
and  in  Kuroi)ean  countries  generally,  however,  the  practise  ia 
to  lew  on  the  occupier. 

If  the  occupi.T  is  called  un  to  pay  the  tax  or  taxes  on  real 
propertv,  both  h."  and  the  owner  will  consi.ler  the  payment  in 
calculalinns  ;v  U,  rentals.  So  far  as  the  tax  is  levied  with  re- 
spect to  .site  vahie.  tlu  jHMMmiary  advantage  of  the  site  to  the 
tenant  is  dimiuishr.i  by  the  amonnt  of  the  tax.  and  the  rent 
he  will  olTer  in  order  tus.>cure  Wu-  site  will  lie  so  much  less.  If. 
on  the  other  hand,  tlic  t.>x  levi.-d  with  respect  to  buildings  and 
improvements  is  clleclrd,  n..t  from  the  owner,  but  from  tlie 
occupier,  the  owner  ..bviou  ly  will  b-  able  to  olYer  the  facili- 
ties at  a  lower  rate,  and  will  be  impelled  by  com|)etition  so  to 
offer  them.     The  nominal  rental  in  either  case  will  be  less  if 


¥: 


TAXES  ON  LAND  AND  BUILDINGS 


523 


the  occupier  is  called  on  for  the  taxes.     The  difference  is  in  the 
mode  of  collection,  not  in  the  incidence  of  the  tax. 

All  this  holds  gootl,  however,  only  if  tuxes  are  certain  in 
amount,  and  thus  calculable.  Unexpected  taxes  are  likely 
in  all  cases  to  remain  onct;  for  all  a  burden  on  the  persons  from 
whom  [)aynient  is  directly  demanded.  If  owner  and  tenant 
come  to  an  agreement  as  to  rent.ils,  a  new  tax  or  an  increase 
of  tax  falls,  during  the  term  of  the  a<j;reoinent,  on  that  one  of 
them  who  is  direcily  ehaiKeable.  In  the  I'liitcd  States,  where 
the  practise  is  to  levy  on  the  owner,  it  is  he  who  feels  the  brunt 
of  all  new  taxes  or  increased  taxes.  lie  can  shift  th(>m  to  his 
tenant  (if  at  all)  only  when  the  time  comes  for  a  new  lease.  In 
England,  where  the  practise  is  to  levy  on  the  occupier,  he  in 
his  turn  must  p;iy  durinp;  the  term  of  his  lease,  and  can  effect 
a  readjustment  in  such  manner  as  to  leave  the  tax  burden  on 
the  owner  fin  the  ease  of  site  rental),  only  when  the  time  for 
renewal  comes.  In  the  United  States,  it  is  not  infreiiuently 
stipulated  in  leases  that  the  tenant  shall  assume  all  taxes,  even 
though  the  landlord  be  chargealtle  with  them  Ity  the  law. 
Clearly,  both  owner  and  tenant  will  consider  this  assumption 
of  liability  in  their  l>arg.iin  as  to  tiie  stijiulated  rental.  Such  an 
agreement  concerning  tax  payment  is  often  simply  a  way  of 
chaffering  about  the  rent,  esp<(ially  when-  site  rent  plays  a 
large  part.  If  the  site  be  vali  ilile  an<l  in  demand,  the  tenant 
will  a.ssume  tiie  p;iyinent  of  taxes  virtually  as  a  nuxle  of 
bidding  higher  for  the  site,  and  will  take  his  chances  as  to  un- 
expected changes  in  tax  ra*es. 

AnotluT  difference  between  .\merican  and  European  practise 
is  in  the  l)asis  of  as,se.  smeiit.  In  the  United  States  taxes  cm 
real  property  are  conuiuinly  assessed  on  capital  value,  tiiat  is, 
on  selling  value.  In  iMirope  they  are  usually  assessed  on  annual 
rental  value.  Thus  in  the  United  States  the  usual  tax  on 
real  property  is  some  such  rate  a-;  SI.."»U  per  SIO  >  of  mIIIiih  price, 
or  1'  per  cent  on  the  capital,  charged  (»n  tin  owner.  In  Eng- 
land a  common  tax  rate  is ')  shillings  in  tlie  pound  of  rental  value, 
or  25  per  cent  ttf  the  rental,  charged  on  the  occupier.     Thesu 


i 


ij 


fi 


524 


TAXATIOxN 


I* 


iK 


rates  arc  roughly  the  same  in  their  proportion  to  rentals.     And 
iu  either  case  their  incidence  is  in  the  end  the  same,  diffenng 
(iu  the  maimer  described  above)  according  as  the  realty  owes 
its  value  predominantly  to  site  or  to  improvements.     There  is, 
indeed   one  case  in  which  the  two  methods  reach  different  re- 
sults- 'namely,  where  rental  value  does  not  correspond  with 
capital  value.     This  is  most  striking  where  urban  land  is  vacant 
and  yet  has  a  selling  vulue  because  of  the  rent  which  it  would 
yield  if  occupied,  or  which  it  is  expected  soon  to  yield  from  the 
growth  of  population.     Such  land  has,  as  it  stands,  no  renta 
value,  or  an  insignificant  rental  value,  and  in  England  it  is  taxed 
lightly  or  not  at  all.     Hocause  it  has  a  considerable  selling  value, 
it  may  be  taxed  heavily  in  the  United  States.     The  case  is 
similar  where  the  land,  though  built  on  and  used,  is  not  used  to 
best  advantage,  having  obsolete  or  tc.mporary  buildings.     It 
would  then  be  taxed  lightly  in  England,  on  the  basis  of  its 
actu-il  rental.     It  would  l)e  taxed  heavily  in  the  United  States, 
on  a  selling  value  representing  the  eapitalization  of  its  potential 

rental.  ,    ,.     , 

The  American  practise  has  advantages  and  disadvantages. 

It  has  the  advantage  of  forcing  laud  into  use.     Every  owner, 

being  tax.'d  on  the  capital  value  of  his  land,  is  under  pressure 

to  make  its  real  rental  correspond  to  its  potential  rental,  and 

hence  to  improve  it  rapidly.     The  English  practise-  permits  the 

owner  to  wait.     He  will  often  wait,  partly  from  inertia,  partly 

from  a  wish  to  bide  his  time  until  the  most  profitable  use  of  the 

site  becomes  c,uite  clear.     The  American  practise  ha.s  the  dis- 

advantag.'  of  stimulating  a  feverish  hust.>  in  getting  sites  into 

use      The  general  speculative  and  profit-gathering    trend  of 

Am»'rican  lif.-  w.,uld  doubtless  lead  in  any  event  to  some  such 

ha.ste  •  but  it  is  made  gn-atc-r  by  our  meth.)d  of  taxation.     Hence 

th.-  s,)'rawling  aspect  of  tlu.s..  American  cities  which  are  rapidly 

growing.     Lots    in   outlying   districts   are    built    .m,    perhaps 

pr..maturelv.  with  the  design  of  getting  a  return  fnmi  rentals; 

i„terme,liate  lots  are  vacant,   their  owners  holding  on  lor  « 

whili-.     In  ICngland,  where  rental  value  alone  is  the  basis  of 


TAXES  ON   LAND   AND  BUILDINGS 


525 


taxation,  land  comes  into  the  market  in  a  more  slow  and  orderly 
fashion.  The  American  practise,  on  the  other  hand,  lias  the 
further  advantage  of  appropriating  for  the  community,  through 
the  machinery  of  taxation,  a  larger  slice  of  the  unearned  in- 
crement. 

§  5.  Workingmcn,  like  all  occupiers  of  dwellings,  are  reached 
by  the  taxes  on  dwellings.  They  are  indeed  reached  also  by  the 
taxes  on  shops  and  factories,  which  enter  into  the  expenses  of 
merchants  and  manufacturers,  and  tend  with  more  or  less 
irregularity  to  be  shifted  to  consumers.  But  this  second  sort 
of  shifting  is  so  concealed  as  to  be  difficult  to  follow  in  any 
concrete  way.  Taxes  on  dwellings,  however,  so  far  as  they  are 
levied  with  respect  to  the  structures,  increase  house  rentals 
unmistakeably,  and  so  cause  their  occupiers,  and  the  workmen 
among  them,  to  bear  a  share  of  the  public  burdens. 

This  indirect  and  concealed  effect  of  taxation  on  workingmen 
appears  not  only  in  the  United  States,  where  all  such  taxes 
are  first  collected  from  the  owners,  but  in  England,  even  though 
they  are  usually  collected  from  the  occupiers.  The  English 
mode  of  levy  is  subject  to  exception  in  the  case  of  workingmen's 
tenements.  Here  the  taxes  are  collected  not  from  the  occupier, 
but  from  the  owner;  or,  if  not  from  the  owner  of  the  site,  from 
a  lessee  who  has  taken  the  whole  of  the  premises  and  sublets 
them  to  the  actual  occupiers.  The  same  obstacles  which  stand 
in  the  way  of  the  collection  of  income  taxes  from  persons  of  small 
means  appear  where  taxes  on  real  prop(>rty  are  sought  to  be 
collected  from  the  occupiers  of  small  tenements.  The  expense 
of  administration  is  larger,  and  there  is  irritation  to  the  tax- 
payer. It  is  much  simpler  to  ehar(j;i'  tiie  landlord  a  lump-sun) 
tax  on  the  whole,  and  let  him  recoup  himself  by  larger  rents 
from  the  several  tenants  i»r  siil)teiiants.  This  is  commonly 
done  in  I^ndon  an<l  other  large  English  cities,  the  landlord 
being  allowed  to  "compound,"  as  the  phra.se  goes,  and  getting 
a  slight  reduction  froin  the  usual  tax  rate  by  way  of  commis- 
sion for  thus  acting  as  taxsatherer. 

The  final  result  is  that  the  workingmaii  is  taxed.  I>ut  rarely 


i 


ri 


mmM 


526 


TAXATION 


liiii! 


;■ ! . ' 


knows  that  he  is  taxod.     He  pays  the  going  cental,   for  his 
house  room,  and  does  not  know  that  m  th.s  rental  .  n   udo 
a  tax  charge.     The  situation  is  doubtless  inevitable,   but  it  is 
unfortunate.     It   mueh   affects   the   attitude   of   the   average 
laborer  toward  public  affairs.     All  that  he  is  oons,.,ous  ot  .. 
the  public  outgo,  which  he  knows  about  because  th.  cty  or 
state  is  an  employer  of  labor.     The  public  income  from  taxes 
does   .ot  seem  to  concern  him.     He  is  co.umonly  in  favor  of 
expenditure,  with  little  regard  to  the  wisdom  of  the  <    Pf  "'^ure ; 
for  increased  taxes  seem  to  be  none  of  his  concern     Some  sort 
of  direct  levy  on  every  voter  would  much  promote  watch  ul- 
ness  and  discrimination  in  pubUc  affairs;  yet  it  seems  hopeless 
to  retain  any  taxes  of  the  sort.  . 

§  6    Taxes  on  real  property  are  in  the  United  States  and  in 
Great  Britain  chiefly  local  taxes.     That  is.  they  are  levied  and 
collected  chiefly  by  the  local  bo.lies.-by  the  towns,  cities 
and  counties  in  the  United  States,  by  tlie  boroughs  and  count les 
in  England.     The  revenue  from  the.n  then  goes  to  <lefraymg 
the  expenses  of  the  local  bodies.     Yc-t  this  li.mlat.on  to  load 
use  is  by  no  means  universally  or  compU-t.-ly  the  c;.se.     A  lan<l 
tax  levie.l  by  Parliament  still  exists  in  England,  though  it  has 
come  to  be  small  in  amount,  and  is  in  process  of  extinction 
The  English  inconu-  tax  roaches  income  from  real  projxTty,  and 
the  revenue  so  obtaine.l  gm>s  to  the  central  govi«rnment.     In  the 
United  States  the  n'venue  of  the  several  stat.-s  was  origiualy 
derived   an.l  is  still  largely  deriv.-d,  from  the  general  property 
tax  (to  be  pn.s.-ntly  considere.l)  in  which  the  taxes  on  real 
property  have  been  l>y  far  the  most  im,>ortant  constituent. 
Nevertheless,  it  may  be  said  that  in  English-speaking  com- 
munities the  t.  ndency  is  toward  using  taxes  on  real  property 
as  strictlv  local  taxes,  leaving  the  central  R..ver.iment  to  get 
its  revenue  in  other  ways,  -  by  in.oine  taxes,  inher.t.  u-e  taxes, 
taxes  on  trade  an.l  communicatio.i,  not  least,  taxes  on  com- 

mcnlities.  ,,         ,     ^  ,„i: 

The  same  ten.len.-y  is  h,.ginmnK  to  show  it^fii  on  .he  Cunt.^ 
nent.    There  taxes  .,n  land  and  buildings,  through  long  use  and 


TAXES  ON  LAND  AND  BUILDINGS 


527 


continued  tradition,  have  been  assessed  and  levied  by  the 
central  government.  The  local  bodies,  the  communes,  have 
simply  followed  in  the  track  of  the  central  government,  using 
its  machinery  and  its  assessments,  and  imposing  for  their  own 
purposes  supplements  or  percentual  ailditions  to  the  state  taxes. 
Such  is  still  the  situation  in  must  countries  of  the  Continent. 
But  a  break  in  the  system  has  l)een  made  in  Prussia,  where 
taxes  on  land  and  l)uiklings,  and  some  other  so-called  "direct" 
taxes  of  a  similar  sort,  liave  been  turned  over  once  for  all  to 
the  local  bodies,  the  state  retaining  for  itself  tlie  income  tax. 
Other  German  states  have  followed  the  Prussian  example,  and 
it  is  probable  that  in  the  '(jurse  of  time  other  countries  of  the 
Continent  will  do  likewise. 

This  relegation  of  tax(>s  on  real  property  to  local  bodies  is 
wise.  Local  l)odies  are  most  likely  to  administer  such  taxes 
equably,  and  in  administering  them  are  free  from  ('.ifficulties 
which  commonly  arise  in  h)cal  administration  of  other  levies. 
Income  ta.xes,  for  '  xample,  tend  to  drive  people  away  from  the 
[I'lces  where  they  are  imposed;  if  local,  tht-y  would  induce  a 
competition  lictween  cities  and  towns  to  attract  re-idents  by  low 
rates  or  lax  assessment.  Taxes  on  securili.s  are  open  to  the 
same  objection,  as  will  appear  more  clearly  in  th"  next  cha;iter. 
Most  taxes  on  the  production  or  sale  of  commodities  are 
sul)ject  to  similar  competitive  eva.sion.  The  li-<t  of  taxes  really 
availalile  for  local  liodies  is  limited,  while  at  the  same  time  their 
financial  needs  are  great  and  growing.  Hence  it  is  desirable 
that  taxes  on  land  and  i)uildings,  wliich  are  peculiarly  available 
for  local  bodies,  should  be  left  to  them  solely. 


i 


CHAPTER  69 


h 


•!  (■ 


The  General  Pkoperty  Tax 

§  1  The  familiar  systcn\  of  local  taxation  in  the  Un''  : 
States  is  that  of  th.>  general  property  tax.  Taxes  on  lar  1  .uM 
buildings,  the  effects  of  which  were  considered  in  the  pr  ^n,, 
chapter,  ire  in  this  country  siniply  parts  of  the  gener.  t  a  . 
all  property.  That  tax,  in  its  earliest  stage  and  in  .'  •  mu  ' 
form,  was  the  sole  cUrect  t-ix,  anil  was  a  universal  ♦.*:.  ^.  t  .' 
is,  it  was  levied  on  every  person  in  proportion  I'i  >'  •■  ^ 
property.  Such  a  system  commends  itself  to  most  r  ",-'  . 
pnmn  facie  jast.  I>et  the  rich  pay  in  proportion  to  the.r  n.h-  >. 
others  in  proportion  as  they  are  more  or  less  rich:  wha-  ^. 
l>e  more  equitable  '  ,        ,     . 

Where  the  ownership  of  property  is  widely  diffused,  and  where 
propertv  is  used  l.>  the  differem  owners  in  substantially  the 
same  ways,  the  result,  in  fact,  sufficiently  conforms  to  cqvity,- 
assuming,  of  course,  that   taxation  is  equitable  when  simply 
proportional.     In  the  early  stages  of  the  industrial  develop- 
ment of  our  colonies  a.i-l  states,  conditions  of  this  sort  probably 
existed,  an.l  the  general  property  tax  doubtless  was  satisfactory 
in   it-   operation.     Then  ahnn.t   everyone   in   the  c.nimuuty 
held  lande.1  propertv,  and  his  income  was  roughly  in  proportion 
to  his  propertv.     Professional  men  wore  few    and  they  wr.e 
usuallv  owners  of  houses  and  land,  and  taxed  on  these.     Mer- 
chants had  visible  stocks  <.f  goods,  aivl  they  also  as  a  rule  owned 
real  estate  in  a.ldition.     Sliipowners   (in  New   England,  .svy^ 
had  visible  pn.pertv.  and  u.Mially  laii.l.     All  were  rea.-hed  by 
taxation  on  pn.p^  rty.  and  w.-n-  r.-M,-hed  in  rough  !>ut  suffic.ei.t 
proportiMU  to  tluir  iu.M)mr       T>,e  s.n.e  sc-ins  tn  be  true  at 
the  present  time  in  those  SnutV.rn  .oi.l  Western  stat.s  which 

.728 


i^ywwr^ 


THE  GENEIUL   PROPERIT  TAX 


are  still  predominantly  agricultural.  There  nearly  every  one 
from  whom  taxes  can  be  collected  at  all  owii.s  land,  and  is  pros- 
perous or  not  in  proportion  to  liis  ownership  of  land  or  of  other 
tangible  property'. 

Under  sucii  conditions  a  general  tax  on  property  is  not  only 
approximately  equital)le,  —  and  in  all  tax  systems  an  ajjproxi- 
maticn  to  equity  is  all  that  can  be  hoped  for,  —  but  is  the 
system  easiest  of  administration.  Strict!/  speaking,  of  course, 
then>  is  no  such  thing  as  a  tax  on  property.  Tare .  which  we 
speak  of  as  taxes  on  property  are  levied  on  indivi(Uials  with 
respect  to  their  property  or  in  proportion  to  tlicir  holdings  of 
property.  The  taxes  come  not  out  of  the  piojjiity,  Vmt  out 
of  the  incomes  of  the  proj)erty  onners.  Th'-se  inconiLs  niay 
indeed  be  tlcrived  from  the  property  or  in  connection  with  its 
use ;  but  they  may  quite  conceivably  be  derived  in  otlier  ways. 
Yet,  while  all  taxes  must  come  normally  cut  of  income,  the 
actual  ascertainment  of  income  may  be,  and  often  is,  more 
difficult  than  that  of  propervy.  In  a  farming  or  planting  cor.i- 
munity,  few  people  could  reckon  up  their  annual  inromes  with 
accuracy.  Part  of  the  income  is  in  k"nd,  i)art  of  it  is 
derived  from  sales  which  are  subject  to  deduction  for  various 
expenses.  To  tax  in  such  a  community  on  a  basis  of  income 
would  lead  to  emllcss  confusion  and  evasion.  To  tax  on  th( 
basis  of  property  's  simple,  an<l  comes  to  very  much  the  same 
result  in  the  end  as  would  be  reached  by  a  rigorous  tav  i.n 
incomes. 

§  2.  In  a  complex  conununity  of  modern  times,  h(n\t\ir, 
sMch  as  all  Euroi)ean  countries  have  come  to  oe,  and  as  most 
cf  our  own  states  hav(>  come  to  be,  the  general  property  tax 
proves  hopv'lessly  impracticable.  It  leads  to  glaring  incon.si.s- 
tencies  and  inequiti(>s,  and  fails  conii)Ktely  of  jittaining  itd 
profe.s.sed  ol>jeet . 

The  first  and  mo-<t  olivimis  difliculty  arises  f'-oin  the  circum- 
stance «hat,  as  the  eommmiity  re;ises  to  be  simpir  and  homo- 
geneous, pro})orty  and  it\c(ime  no  longer  run  s:de  i)y  side.     .\!! 
sorts  of  income  devel"»^  which  do  not  rest  on  the  ownership  of 
vol .  n  —  2  M 


n 


-II 


I 


ft 


1 


m 


t 

?i.' 


r^i 


ggQ  TAXATION 

proi^erty.     Such  are  the  incomes  of  la.y  r.,  physicians,  and 
o  h  r   ,Lfcs«ionul   n.on.    of   salariea   ..i.  :r.h,    of   prosperous 
Lchauics.    of    propertyicss    laborer.     Tue    last-mout.oned 
cl.,  SOS  -  mochunios  ami    laborers  -  are  not   commonly  sup- 
pose.1  to  present  problems  in  a  tax  system  based  on  property 
levy   b..cau.e  it  is  tacitly  or  openly  assunKxl  that  no  taxen  at 
all  shouLl  b..  lai.l  on  the,n.     It  has  alreu.ly  l>een  sa.l  that  th^ 
i«  not  a  reasonable  view,  an.  1  that  th.-  fa.  lure  to  l-T -^   h" 
directly  is  to  bo  explained  by  the  u.hnnustrat,ve  ,hfl.eult>  of 
roa..hin«  the.n  rathor  than  justified  on  any  sound  pnncple. 
H,.t  in  any  .ase  thore  are  pUnty  of  prosperous  inc^Muo  earners 
«hon.  all  would  adnnt  to  be  justly  taxable,  and  who  would  be 
reached  not  at  all  by  a  sin.ple  property  tax.     These  are  persons 
having    "unfunded"    in<..nu.s ;    which,    though    perhaps    not 
t,.o,.,ht  justly  taxable  at  the  san.e  rate  as  fund.-d  u.comes, 
.urely  woul.1  not  be  thought  by  any  one  to  beent.tled  to  co.a- 
pL.te'exemption  fron.  taxation.     The  incon.es  of  busnu-..s  n>en, 
.,  far  as  thev  are  business  profit,  in  the  stri.t  sen.se,  Ih-Iouk  m 
the  san,e  c-la^s,  and  nav.-  but  a  loose  relation  to  the  property 
holdiiiRs  of  the  s.<veral  individuals. 

Further,  diiheulties  of  a.lministrati.m  arise  at  an  early  stage 
in  industrial  growth.     The  .lifli.ulty  nu^.tioned  in  the  prece.hnR 
paragraph  would  exist,  even  if  the  tax  were  earru..  out  u.  lul 
Lcor.l  with  its  theory  ;  but  it  s.x,n  proves  v.rtually  nnpo.ss  bio 
^  to  .arry  it  out.     Not  all  tlu-  pro,H-rty  supposed  to  be  reached 
can  in  fa-t   U-  reaehe.l.     \.^^^^  and  buildings,  n.aehinery,  fann 
aninuds.  ..nd  the  like  bulky  forn.s  of  pn>perty  ^^^^  "^^ ^T^ 
oealed      Th.  v  are  unfailingly  asMsse.l  and  fully  valued  b>  the 
U«  oilieiaK.     lU.t  ..ther  f..rn.s  of  property  .'an  U-  .'onceahHl, 
or  at  lea>l  are  no,  suseeptib.e  nf  e.-..y  a.id  ae.urate  assensmen  . 
Sue',  are  the  sto.  ks  in  tra.le  ..f  mer^hant^  and  dealers,  an.l  koo.1h 
i„  pro.e.s  nf  nmnufa.  lure.     ,\s  tn  tlu  m..  .  .le.h.ration  nf  anu.unt 
and  value  n.u-t  be  snuaht  fmn.  the  taxpayer.     This  at  once 
opens  the  dnnr  tn  under  tate.nent  ami  eva-on  ;    the  n.nre  so. 
l„.,.aUM-  It  brings  an  .mwe|.  nu...  intrusion  into  what    ar.^  M.p- 
tM,s..d   to   be   priNate   alVairs.     The   ten.,.tation   to  evasion,  of 


THE  GENERAL  PROPERTY  TAX 


531 


course,  becomes  stronger  as  the  tux  becomes  heavier.  A  modest 
rate  of  \  or  J  of  one  per  cent  on  the  capitul  value,  such  as  was 
common  in  the  American  states  a  century  ago,  causes  compara- 
tively little  trouble.  But  when  the  rate  rises  to  one,  two,  even 
three  per  cent,  as  it  has  done  during  the  last  half  century,  all 
the  most  hateful  jjhcnomcna  of  ta.\ation  appear,  —  lying  and 
equivocation  by  the  taxpayers,  alternate  harshnes.s  and  laxncss 
by  the  officials. 

Most  striking  among  the  perplexities  and  difFiculties  are  those 
which  appear  as  lending  and  borrowiii";  and  purchases  on  credit 
develop.  To  tax  a  man  on  his  property  without  making  allow- 
ance for  his  indebtedness  is  manifestly  not  in  accord  with  the 
general  intent  of  a  property  tax.  Yet  to  allow  for  indebtedness 
opens  the  door  to  easy  evasion.  In  Mussaehusetts  at  the  pres- 
ent time,  a  merchant  having  a  large  stock  of  goods  on  hand  is 
taxable  on  tlie  full  amount,  no  deduction  being  permitted,  even 
though  his  debts  shoulil  be  as  great  .as  what  is  nominally  his 
property.  This  stern  rule,  I'.owever  unjust  in  principle,  finds  jit 
least  an  excu-e  in  the  exi)erien<'e  of  New  York,  where  the  con- 
trary practise  jmvjiiN  :  iiidebteilnos  is  allowed  to  reduce  the  tux 
assesr^ment.  In  New  York  any  one  who  is  dissatisfied  with 
the  tax  collectors'  demand  on  him  not  only  declares  his  real 
''•_>bts,  but  cooks  U[)  a  <lebt  if  necessary  ;  i'..  iiaps  swears  to  one 
that  (hx'S  not  exist,  or  salves  his  conscience  (men  do  <iich  things) 
l>y  getting  a  frieml  to  become  pro  funiin  a  c-editor.  The  |)rocess 
of  "swearii\g  off"  the  asse'-tnents  of  personal  property  i-; 
carried  so  far  in  New  N'ork  as  to  make  this  part  of  the  tax  -system 
a  farce. 

Still  anotlier  and  e\en  more  trou!i|csume  cohse<iueni'e  uf  the 
interlocking  of  property  rights  and  the  de\eiopmeiit  nl  indebted- 
ness is  the  diliicnlty  of  reaching  the  credilur  hiiiisell'.  The 
property  of  many  persons,  and  e-|(eci.'illy  of  \vi||  to-do  persons 
onsists  largely  of  claiiiis  against  others.  'i'hey  li;i\('  <lrbtH 
due  to  them,  evidcncecl  cotmiiiudy  I  y  |»rotiii-~-niy  notes,  bonds, 
pnlilie  securities.  The-^e  pauers  are  properts  in  the  eye  of  (he 
law,  and  are  ta.\ub|e  as  such,     lint  they  are  the  form  of  proj)- 


I 


V\ 


r  ■! 


532 


TAXATION 


IT'  ' 


erty  most  easily  concealed.    Tl.e  difficulties  encountered   in 
reachini;  stock  in  trade  and  the  like  personal  property  are 
encountered  in  vastly  greater  degree  in  regard  to  this  most 
intangible  element.     And  here,  again,  the  ilifficulty  becomes 
greater  in  proportion  as  the  tax  rate  is  high.    There  never  has 
been  in  our  American  states  anything  more  than  a  pretense  of 
bringing  ^he  actual  taxation  of  this  sort  of  property  mto  con- 
formity  with  the  h'tter  of  the  law.     Usually  there  has  been  not 
even  a  preten.s(>.     The  property  tax,  while  nominally  ai>phcable 
to  all  property,  has  been  applie.l  in  fact  only  to  real  estate  and 
those  forms  of  personal  property,  such  as  expensive  plant  and 
machinery  in  the  cities,  or  farm  animals  in  the  country,  which 
are  as  easy  to  see  and  to  value  as  lan.l  and  buildings.     Other 
forms  of  property,  and  espe.-iaily  n..t.-s.  cre.lits,  and  the  like, 
are  not  taxed  at  all.  or  taxed  by  the  nu-rest  guesswork. 

The  final  cause-  which  has  led  to  the  breakdown  of  the  property 
tax  ha-s  been  the  .'xtraonlinary  development  of  corporations,  and 
80  of  the  ownership  of  wealth  under  corporate  form.  St<.cks, 
bonds,  and  corporate  se<-urities  ..f  nil  <orts  are  the  form  in  which 
riches  are  likely  to  be  hel.l.  All  th.s<-  are  property,  an.l  taxable 
as  such;  though  taxable,  as  we  shall  see,  in  different  ways  its 
the  legislati.m  for  the  property  tax  has  tri.'d  to  adapt  itself  to 
this  sitimti..n.  How.  ver  taxable  in  the  .'ve  of  the  law,  they 
are  rarely  taxed  to  th.-  hol.l.T  in  fact.     Kva.sion  is  the  rule,  not 

the  exception.  ,     ,.   ■ 

§  :\.  The  full  breakdown  of  this  mode  of  taxation  m  the  I  nite<l 
States  in  face  .>f  the  eomplexitie.  of  prop.Ttv  ownership  in  th.' 
nuxlern  world,  ha>  come,  .-is  Mn-ady  int.mate.l,  with  the  increase 
in  the  rale  of  taxation.  That  rate  has  come  to  be  usually  from 
1^  to  2  per  cent  (m  the  vidiic  Securities  and  the  like  invest- 
ments yield  ordinarily  something  hke   t  or  f,  per  .-ent  on  the 

capitafvalue.     The  property  tux,  if  eolleeled  as  the  law  i- 

templates,  would  therefore  be  equivalent  to  a  tax  of  from  M) 
or  M  i>.T  cent,  even  m..n-,  on  tl.e  income  It  is  extra..ni.nary 
how  people  allovv  themselves  to  be  de.eive.l  on  thiss>,hject  by 
namen,     Persons  who  .I.M.nunc  an  income  tax  as  uujuisitorial 


U    ' 


THE  CZXERAL   PROPERTY  TAX 


533 


^ 
t 


and  confiscatory  and  "un-American,"  none  the  less,  Ih  causo 
they  find  the  existing  method  labeled  a  "pruperty"  tax,  accept 
it  us  part  of  thr-  normal  order,  and  oppose  it  with  none  of  the 
fervor  which  the  income  tax  i)roposal  arouses  The  prof/<rty 
tax,  if  levied  on  .securities,  nnist  l)e  pai<l.  lilte  all  taxes,  fr  ni 
income.  It  amounts  to  a  tax  so  hinh  in  relation  l<>  im  -me  lh.it 
it  may  be  called  really  confi.scatory.  No  government  lia<  e\'  ■■ 
attempted  to  collect  an  income  tax  sd  h";ivy,  least  of  al'  ha^ 
attempted  to  collect  it  with  an  administrative  .■system  as  bad 
as  that  of  our  .\merican  i  itie-;  and  state-. 

So  far  as  securities  are  <'oncerned,  evasion  of  the  gt  •  d 
property  tax  is  so  general  that  it  is  rarely  reekuned  with 
adjusting  investments.  .\  f.imiliar  mode  of  evasion  is  by  ch.inur 
of  domicile  to  a  j)lace  when'  no  pretense  is  made  of  tiiforeini? 
the  tax  as  regards  "iiitaiigil)le"  property.  I'nder  the  law,  the 
"situs"  of  personal  property  i^  at  the  owner's  domicile,  and 
at  that  place  the  property  is  taxal>le.  Wheu  the  tax  rate  Ih- 
conies  high  in  a  city  and  is  sought  to  be  colleettMl  on  securities,  ~ 
and  of  course  it  is  in  cities  that  tlie  owners  of  sui-h  property  are 
likely  to  live,  it  is  often  easy  to  ^hift  residence  lo  ;i  subiirl" 
where  the  authorities  are  more  iMnnpLiisant.  The  suburb  has 
everything  to  ^ain  and  nothing  to  lo-c  by  the  trrn->fer.  If  a 
person  of  means  settles  in  it,  hi>  dwelling  becomes  taxable 
there  and  ad<ls  so  mudi  to  the  town's  resourie-^.  without  addiiur 
appreciably  toitsex|M'nses.  If  the  town  be  otherwise  attractive, 
it  will  readily  become  a  "residential  -suburb,  and  more  or  le-s 
of  a  tax-^lodger's  pjiradise.  .\ttempts  to  enfi.rce  the  noriii.il 
tax  law  to  the  letter  have  commonly  resulted  in  the  growth  'il 
such  tax-do<lging  re-.ort<.  <  »f  course,  il  would  lie  ))o«xil.|e  to 
check  this  particular  tendency  within  any  one  -late  bv  inakinir 
the  rate  of  taxation  (on  -securities  and  the  like)  uniform  ihroiigii- 
("Ut  the  stiife,  aii'l  bv  pro\  idiiig  for  riuid  ;ind  iinitorin  a-sess- 
IIH  lit  bv  -t.ite  olliciilb  l'',Veli  SI),  tlun  umiM  leniaill  the  pos-i- 
bilit\  of  change  of  domicile  from  the  ..  vt  ri'  -tate  to  ,1  neighboring 
lax  st.ite,  a  possibility  which  ui'uld  bee.imc  .i  pnina.;  'v 
in  the  case  of  the  vcrv  rii-li   who  aie  not   tied  t,,  am  one  i)lace 


I 


534 


TAXATION 


of  residence.  Uniform  action  by  all  the  states  in  such  a  matter, 
it  would  1)0  hopeh>ss  t..  expect.  Notwithstanding  all  the  dis- 
satisfaction witli  the  system  as  it  has  come  to  work,  and  not- 
withstanding occasional  efforts  to  make  it  work  in  accord  w.h 
its  theory,  no  Auu-rican  state  has  resorted,  even  singly,  to 
uniform  a.id  c-entralized  assessment  and  collection.'  Conse- 
nuentlv,  th.>  option  of  a  change  of  residence  has  always  Wvn 
„,,,„  ,o  the  threatened  taxpay.>r;  and  the  mere  c-x.stence  of 
this  option  has  served  to  temper  the  activity  of  woul<l-!,e  ener- 
m-tic  or  conscii-utious  tax  ofli(i:ds. 

None  the  less,  spasuu.dic  and  irr.>gul:ir  attempts  to  enforc 
th.  law  are  ma.le  from  ti.ne  to  time.     Property  which  happens 
to  come  under  the  v.-ry  nose  of  the  tax  assessor,  and  which  he 
cannot  overlook,  lu'comes  subject  to  taxation.     TluH.  securit.es 
belongi.ig  to  estates  whi<-h  an'  in  charge  ..f  th-  ,>n.hate  courts 
.luring  th."  process  of  transuiission  to  heirs  and  legat.-es    may 
K,.t  into  the  net  :   for  Inn-  there  is  necessarily  som,>  publicly. 
For  a  brief  space  ti.e  full  tax  uk.v  be  collectc'd  on  such  property, 
very  likelv  fron,  persons  Ica^t  able  to  sutTer  (he  loss  of  income. 
\u\-v  a  wbile,  tl.ev  n^arrangr  their  aiT.iirs.  and  in  some  way 
^oMceal  or  evad.« ;   unl..s<.  indeed,  tb.y  belon,:  to  that  very  small 
da.,  of  liighlv  conscient  iou^  persons.  1o  whom  any  act  ol  mdirec 

tion  is  imp..-il'le.  KqnaMe  and  uniform  api>ii.-at,on  oi  (he 
tux  n.'ver  lias  b.e,,  made.  In  its  i.radi.al  operation,  as  regards 
what  is  •■allrd  "intam^ibl."  pro  eriy,  it  i>  ban'  a/.ard.  m^tlec- 
tive,  prodii.'tiv.-  ..f  small  rrvenues  (..  (li-  [mblic  and  d.anoral- 
iziug  alikf  (o  (axpay.Ts  and  tax  o(h.  iak 

\s  matters  stan.l  in  (be  rni(.d  St.fs.  (he  tradidonal  tax 
sy.trm  works  b,.s(  whrrr  (be  l-((rr  ..f  (ho  law  is  disr.-gar.l.Ml  aiul 
,i„.  property  (:.x  -^  in  fa.t  applied  onlv  (o  l:.nd,  bnddmgs.  and 
,„|„.r  tho.urs  bulkv  n..d  vi^ibl..,  Th,s  is  f.r  Iron,  b..ne;  a  satis- 
f,..t-.rv  s,.u...(ion  It  .n->n-  tt„-,t  the  law  :-  i(  st.'mdson  the 
M:,(ut..  bonks   is   di-tvt;ard.  ,l       l(    lueMUs   (liat   no  prr(..nM'    is 

UV .h- .saun,f..n 1, •-"^;'^    'V'' '^^    TV V,!!:  1« 

i,  in  (h.'  (.■•..■I.  "f  tl.r  1...I.1  ..utiH,,,',,.-   ....t  . .  utrulu.a. 


i 


THE  GENERAL  PROPERTY  TAX 


535 


made  to  carry  out  the  ideal  of  justire  which  uudorhosthe  law. 
Not  eveu  that  rude  proporf  ionulity  which  would  result  from 
taxing  i)U  the  full  property  busis  is  striveu  for  in  actual  ad- 
miuistrulion.  The  ultimate  incidence  of  the  system  in  this 
phase  of  its  actual  wurkuiK  is  diiiiciilt  to  follow;  hut  there  is 
no  grounil  i<.r  sui)p<>siap;  that  it  l)riu(;s  results  in  accord  with 
any  prmciplc  of  proportional  taxation,  still  less  of  progressive 
taxation.  Yet.  when  confined  to  realty,  and  to  personalt\'  that 
is  like  realty,  it  is  at  Iciist  simi)Ie  and  calculahle.  People 
adjust  ,cir  alfairs  to  it,  and  there  is  not  the  uncertainty  and 
(h'nu)i;.ii/atioii  wliiili  conic  from  the  eiuh'avor  tt)  carry  out  an 
inii)os--il)lc  -    -.tiiii. 

It  is  l.cca\i-.r  of  thi'  ])roces>  of  adjust ni(>nt  that  th<'  property 
tax.  \shcn  midined  chiftlv  to  real  property,  ceases  to  he  a 
sul)ject  for  coinplaiiii  aid  ncriuiination.  It  l)ecoines  in  larne 
deforce  a  shiitctl  i  i\  So  I' n-  a  .  it  is  on  sites,  it  nMuaiiis,  to  t)e 
sure,  on  the  owufi-  liut  ;i-  thc-e  are  prolial>ly  piinlins'Ts  of 
comi)arativ(lv  ifcint  .lii-  m-  li.ivc  l>een  lioldcr^  for  so  louK  a 
time  that  capital  vahic  \\:\-  ■  <n  adju>tcil  on  tlie  l)a-is  of  a  tax 
deducted  from  the  iueiiMn\  iliey  are  hardly  conscious  of  a 
liurden  from  tlie  |,'V\.  T'l-  'axes  on  ImildinKs  tend  to  be 
shifted  to  orcupiers  ;  and  l!i..-e  on  liuildinns  uscmI  for  Imsiuess 
ten<l  to  be  further  -^liil'ted,  throniih  the  ivceiipiers,  on  the  c<»m- 
munity  at  larp-.  There  are,  mdeed.  sctmi-  persons  a-'  to  whom 
it  is  toleral)ly  certain  that  the>  will  feel  a  real  and  continuing 
burden  of  the  ta\  on  their  own  sliouldcrs.  Such  are  tho.se 
who  own  and  oecni)y  their  dwelliujcs.  The  same  is  substan- 
tially th.'  case  of  the  I'isrui  owners.  On  his  .Iwellinn  the  farmer 
pays  the  tax  onn-  for  ,ill.  like  my  otiier  h<iu>e  owner,  'hi  the 
improvements  to  liis  fan;i  he  i^,  .ib-tr.ictly  considered,  in  the 
s.'ime  |M)sition  as  any  (»t!ier  improver  of  hind.  the  t  i\  iii:iy  lie 
shifteil.  On  moderate  anneiiltur.il  projiertie-.  hour\M-,  lield 
and  tilled  by  their  o\viier>  not  only  .i-  liu>iiie>-  r:ipi1  il.  Lut  ,114 
homes,  the  process  of  shifting  t.ike-  place  with  ureal  -Inwue^s 
and  uncertainly  On  tiie  other  hand,  il  l.tKi  iilac  witti  .'otn- 
parative  certainty   tor  the  great   ma.->  ot   buildings  and  other 


I 


530 


TAXATION 


i,nprovomonts  on  land,  which  are  .nude  sunply  and  d.  e  tly 

"investmeut,  whether  for  use  in  production  or  for  rental  as 

velli..gs.     How  difficult  it  becomes,  then,  to  say  whether  the 

ouU-ome  i.  in  accord  with  any  principle  of  iust.ce  m  taxa- 

ion '     And  even  so.  the  last  word  as  to  the  mcidence  of  th  s 

r^e  of  taxation  ha.  not  been  said;   for,  .s  w.ll  appear  pre  - 

ently,  there  is  in  the  background  a  further  possibility  of  ul- 

'1"  1^'',>osition  of  corporations  and  corporate  securities 
in  the  general  prop-rty  tax  calls  for  some  further  consideration. 
Tlu.. hares  of  a  .-orporation  in  the  hai.ls  of  its  members  are 
nropertv,  and  as  such,  under  strict  legal  interpretation,  would 
.L=^''i<'  to  their  owners.     But  it  would  be  obviously  absurd, 
,,,.e  co,porati.>n  and  shareholder  live  in  the  same  junschc- 
,„„,  ,.,   L  the    corporation   on   its   property   and   also     he 
shareholders  on  the.  shares.     Hence,  it   is  usual  not  to  tax 
the  .harelmlders  as   such;    the  corporation  is  taxed    and  the 
lares  in  th.-  owne.'  hands  ar-  exempted.     This  s.mpe  and 
r"  onable  mode  ..f  treatment  has  usually  bc-en  the  resu  t,  not 
...pliei,   legislation,  but  of  construction  of  the  statutes  by 
t  lu.     .ur,s,  which  have  assumed  it  to  be  the  intent  of  tuyogis- 
I'^ure  to  tax  the  propertv  one,  and  not  twice  under  different 

""'l^i!;  nK.de  of  treatment,  however,  is  not  commonly  a.^.ptvd 
..here  the  corporation  is  in  ..ne  juri.li-  tion  and  the  shareholde 
lives  m  another.     Suppose  the  corporation  is  one  which  carries 
.,„  „,i  its  operut...ns  in  New  York,  -  say  a  manu  ac  urinK  cor 
,,„,,,,  ,„,.i.«  .„  .ts  propertv  m  that  state.     Asharehoh^ 
ives  m   Massachus.tt>.     Shall  he  be  taxed  in  Massachusetts 
on  ,,i.  shares  m  th,.  N.w   York  corporation?     The  common 
,,,.,.„..  is  to  reitnrd  th-s.  -foremn"  shan-s  as  pn.pcrty,  and 
;.,'„,  ,|„.M  on.-,  for  ail.     It  is  no.  the  umversal  prart.s..     In 
,1,,.  .tif  of   N.w   York   itM'lf,   n,   the  c-n.vers.-  ras.-,  that   of  a 
^,,v  ',  ..,K.r  huldiim  .hare<  ,n  a  Mas.a.-hus,.tts  eorporat.on,  the 
;.,„.r,,  l,.ve  h.-ld     ..oM.trumK  a  >tatute  who.-  hm«uajc.>  .s  not 
..xpUnt,    that    foreign  shares   are   no   .nore   thau   evidences  of 


!;.i(<  •- 


THE  GENERAL  PROPERTY  TAX 


537 


property  existing  elsewhere,  and  that  they  do  not  constitute 
property  "situated"  within  New  York;  therefore  they  are  not 
to  be  taxed  in  New  York.  In  some  otlier  states  the  same 
outcome  has  resulted  from  similar  judicial  decisions.  But  as  a 
rule  such  shares  are  regarded  as  property  whose  "situs"  is 
mthin  the  state  where  the  owner  lives,  and  they  are  taxable, 
in  theory  of  law,  jjreciscly  like  real  estate  or  any  other  sort  of 
property. 

The  result  is  "dou])le  taxation."  That  is,  the  property  itself 
is  taxed  in  one  place,  and  the  paper  evideiie(>  of  its  ownership 
is  taxed  in  another.  To  tnx  twice  the  s:une  property  (or,  to 
speak  more  carefully,  the  income  from  the  same  property)  is 
not  necessarily  ot>jectional>le.  In  Engl'md,  and  in  other  coun- 
tries haviuR  an  income  tax,  tliere  are  taxes  levied  directly  with 
respect  to  real  property,  and,  in  ad<litioM.  taxes  on  the  income 
from  tliat  i)roperty.  But  since  all  property  and  all  persons  are 
treated  alike  in  this  reganl,  the  duplication  pives  no  Kroimd 
for  complaint  iiy  any  individual.  It  dimply  serves,  in  m«)st 
cases,  to  demarcate  levies  for  different  purposes,  —the  taxes 
on  property  beinK  more  commonly  fi>r  local  purpose-;,  those  on 
income  more  coininonlv  for  the  needs  of  the  central  autlmrily. 
A  real  Krouiid  for  ohjectinn  to  double  taxation  exists  when 
some  individuals  ;irc  taxed  doulily.  .and  others  are  not.  This 
occurs  wh(>n  those  s!i;irelioMers  are  taxeil  who  live  in  a  different 
jurisdictioi\  from  th:,i  of  the  corporation,  while  those  livinR  in 
the  s.ame  jnri-diilion  are  not  taxeil. 

Th(>  san\e  problem  present-  it-elf  as  to  the  other  important 
cla.ss  of  corporate  -I'euritie-.  the  liond  or  ilelienture.  ]hi\  it\ 
this  c.a.se  the  dilhculty  i-  dimply  iifnoreil  in  Tiiost  of  our  state>. 
Bonds  are  usually  taxed  without  (inestion,  In  the  eye  of  the 
law.  a  Ixmd  is  a  driit  lik"  uiy  other,  and  i-  not,  like  a  >tock 
certificate,  nn  evidence  of  ownership;  ai\d  it  is  "property"  in 
the  h:ii\d-.  of  it-  owner.  In  the  eye  of  the  economist,  however. 
a  bonil  is  essentially  similar  to  a  stock  certiticate  it  is  papei 
evidence  of  the  pre<umal)le  inve-tmenl  ol'  e.ipital  and  the  piv 
sumable  existence  of  ctirporeal   property      Whelh"!   tli"  ekiim 


ti 


'■  r. 


638 


TAXATION 


on  corporate  property  .h.U  take  the  one  form  or  the  other, 
depenroa  all  sort,  of  cousuleratious,  -  the  state  of  the  law, 
the  habits  and  prejudices  of  investors,  the  nature  of  the  vanous 
enterprises.     The  stocks  and  lx>nd-  of  a  corporation,  taken 
together,  represent  the  eiTeclive  ownership  of  its  ^^-^^^ 
To  tax  all  the  property  of  a  co.porat.on,  and  then  to  tax  the 
bonds  also,  is  to  all  intents  .buhle  taxation  as  .nuch  as  .t  »s 
to  tax  the  slutres  in  the  sa.ne  way.     Yet  it  is  connnou  not  only 
to  tax  the  bonds  when  they  are  held  by  persons  nv  otlu>r  states, 
but  when  they  are  hel<l  by  citizens  of  the  sar-  •  state.      .  hat  is, 
the  bonds  are  taxable  under  the  l.tter  of     u  ■  law      In  fact 
their  holders  are  rarely  subjected  to  taxation,  just  as    he  ho  der 
of  shares   are  ran-ly   taxed.     The   bre.k.lown  of  tho  u^  nera 
property  tax   is   e,,ually  conspicuous  as  to  all  the  .•las^(-s  of 
corporate  securities.  •     •   i. 

The  remedv  for  this  d.MuoralizinK  situation  is  ui  pruicpU 
comparativelN-  si.nple:    tax  the  eorporatiou  an-l  disre.urd  the 
securities  and  the  security  holder.     Apply  the  dev.ce  of  taxa- 
tion at  the  source.     Or,  at  least,  disre.urd  the  se-^unty  ho  < ler 
so  far  as  the  tax  on  pro,>erty  is  concerned.     This  would  not  be 
difficult  if  the  United  States  were  otu-  jurisdiction   or  could  be 
treate.1  as  o.ie  juris.lutio>».     An.l  it  is  not  in  fa.-t  d.(h.-ult  where 
corporation  and  se<-urity  owt.ers  are  in  the  sanv-  state,  as  ts 
often  the  .•ase  with  locally  owned  corpor.uions  of  nrnderate  si/.e. 
But  for  the  Krcat  cor,.<.ratio,i^  which  hive  become  so  charac- 
teristic and  widespread  in  our  fune,  the  problem  ot  .nt<-rstate 
apportiouu.eut  of  taxes  is  often  verv  iutrieut.«.     It  is  not  w.th.u 
th..  -cope  ..f  Ihis  hook  to  cou.ider  the  details  of  this  unpor  ant 
problen.    cu.nplie.ted  ns  it   i^  not  ouly  by  eeononr.e  difficulties 
R„d   bv   eM^ti..-J^   .diu^tnu.nts   and    vested    ai.om.di.-,    but    by 
logid    i,„.l    eun<t,tu....,l    intneaeie..     The    i,,isl,,t,on    of    tlie 
s,.v..nl  state.  K  .h.vsb  uorKi.i-  in  the  ivzhi  d.reelio!,  as  rcRards 
tl...  eorporatioiHtlu.n^.lves,        towapMaviuu  .l.->.  f'.H.v.  ""d 
taxing  then.  '  .11  the  wtmie'  with  nasoniible  reuiud  to  the  prop-'r 
apportioiuueut  of  taxes  L.tweeti  the  dtlTereut   -tates  ,n  which 

'    '  Mil  1'- ...«     4>r>tu»ilt  Kill 


thi'V 


n,:.v  .„„,h„t   their  opcrati<.ns.     The  frequent  op|K.sition 


THE  GENERAL  PROPERTY  T.\X 


539 


of  the  corporations  thomsolves  to  equable  taxation  —  to  taxation 
tliat  is  on  tlie  .same  basis  and  to  the  same  extent  as  other  property 
holders  — is  among  the  serious  obstacles  to  reform.  Such 
opposition  is  as  natural  and  inevitable  as  that  of  anj-  set  of 
persons  from  whom  taxes  are  demanded;  but  in  this  case  it 
adds  to  the  complications  by  intensifying  the  popular  repug- 
nance to  exempting  the  security  holders.  That  exemption  is 
the  logical  corollary  of  the  complete  and  efTective  taxation  of 
ihe  corporations  themselves.  Yet,  except  as  regards  the  shares 
of  so-called  ''domestic"  corporations,  that  is,  corporations 
which  are  within  the  same  juri.sdiclion  as  the  shareholders 
themselves,  there  is  little  ol)servable  tendency  toward  this 
further  stej).  We  still  find,  commonly,  draconian  severity  in 
the  letter  of  the  law  and  almost  cynical  laxness  in  its  adminis- 
tration. 

Even  if  the  principle  stated  in  the  preceding  paragraph  wore 
coasistently  carried  out,  all  difficulties  as  to  the  taxation  of 
cor|X)ratiuns  and  corporate  securities  could  not  be  said  to  be 
removed.  There  would  remain  unsolved  at  least  one  problem 
of  peculiar  imjjortance  in  the  Tnitcd  States  :  tlie  apportionment 
of  taxes  betw<'en  dilTereiit  jurisdictions,  when  the  income  is 
derived  in  the  one  and  eiij(»yed  in  the  other.  \  man  lives  in 
Massachusetts,  and  has  incotne  from  property  in  New  York: 
by  which  shall  he  be  taxed?  i)er!i.ipN  by  both?  It  is  natural, 
nay,  in  accord  with  the  principles  of  eciuity,  that  the  state  in 
which  he  lives  should  call  on  him  to  contribute  to  its  public 
burdens;  and  e(pially  nattu-al  and  e(|uital>le  that  he  should  i»e 
called  on  by  tlie  state  in  which  is  his  income-yielding  property. 
Under  exi.sting  American  Icui-ilation  and  practise,  it  is  .settled 
that  where  rejd  property  is  owned  in  one  state,  and  the  owner 
lives  in  juiother,  he  is  tavalile,  as  to  property  of  this  kind,  not 
where  he  lives  but  where  the  realty  is.  Hut  where  there  is 
a  paper  evidenee  of  ownership,  the  st:ite  of  residence  is  usually 


gla. 


to   seize   nil 


rfrict   le',;ai   inlerpreI;ition  of  tin-   W( 


.rd 


'property 


.•(111 


t;i\   its   resident   on   his  stocks  or  bonds  or 


inortg.iges,  even  though  these  be  but  claims  on  property  existing 


540 


TAXATION 


,„,„,.,.„. , .„„„ „, no *--t:' nl-i:".''": 

"•  -"'°  ''-  n' Jnrtl  ta..t   ^n,  caUed  on 
taipayi-T  may  protest  |j,^j  ^  ,^„uid 

t„i,.o;  y<-.-**''=™»>-™:*  'C  i     or  purport,  to  be, 

,1  „,  taction.  „naU,.>»  to  oor,»™        ■  ---^^^    ^  ^^^^  ^^„ 

evulonccs  of  partial   *>«»         i-  .uorteaEe  note  are 

.,,l,in  .l,c  same  i„ris.li..,„„.  the  -1"'  ;  '^  f  ,;  ,„.  „  •„ 
„„p  ,„„.ar.,  solution,  --'f  •;;,-;^-;  7,  ;,,.  „I,,  .W,  1, 
a„sura  to  tax  as  ■•prov.;r  >      '^     _,„^ ^,„,.„     ^he  soun.l 

""■  "";■"""  :    ;  .       X        W  ;r...mor  an,,  .l.«„r,  but  ,„ 

nil,-,  obviously.  i>  n..t  to  lax  presents 

,,,,ieet  the  whol.  property  to  '>'-;-  ^^^^..^  in  the  same 

luVw.iilti.-  whero  iK>th  partus  iivi 
--•;>;•'""';;•:'. .t.nann..r  the  upportioun.nt  of  tho 
j„ns.lu-t.on      J.M    .  ^^^^    ,,vopartu.s    is    not 

„ne  tax  is    lust    air.mMd    "  (^,^^. 

)      ,.    ,...  V  to  -av      One  mcth.xl  i>  to  tax  nu    «• 
always  ea-N   lo  ..i\-  vilne  of  his  elaiiii, 

,„,,,„.r  ..t  .!»■  .n..r.Ba„,.  no,..>  ""    "    "    ,;■      „.^,  ..„;„„  u 

,„,„iM,.  ,..  r,.a,b   tW         '        ;„^„^.„,  ,„.., -lain,,  all  mort- 
j„ris,l„..i..n  ;  s,u.-.  '"'",'i  ',■„.,„,.„,.  n„.r,.  is  reason 

-;:r:;::'t:.i:t.n„...^^^^^ 

to  tax  th,.  whole  property  oucc  for  all  m  lh< 


THE  (;i:.\i:hal  piiopertv  tax 


o41 


owner,  mortgaged  though  it  l>e ;  trusting  to  the  eltVct  ol  competi- 
tion among  the  tax-exempt  lenders  to  bring  the  rate  of  interest 
down  to  the  minimum,  and  so  give  the  borrower  terms  as  easy 
as  he  could  get  under  any  circumstances.  Tliis  second  method 
is  most  in  accord  with  a  consist(>nt  appHcation  of  the  general 
property  tax,  and  is  easiest  to  administer;  but  it  is  not  certain 
from  experience  that  the  mortgage  borrower  will  always  get 
the  benefit  of  competition  an<l  of  a  lowered  rate  of  interest  as 
fully  as  is  expected. 

When,  however,  there  are  conflicting  jurisdictions,  the  prob- 
lem as  to  mortgages  becomes  more  troublesome,  as  it  does  in 
the  case  of  corjwrate  securities.  .Sui)posi'  the  mortgaged 
property  is  in  one  ^tate,  whih-  the  creditor  who  holds  the  mort- 
gage lives  in  another.  Shall  both  be  taxed  on  the  full  value 
of  their  "proi)erty  "  ?  Here,  as  in  the  other  case,  there  seems 
no  certain  principh"  for  settling  the  just  apportionment  of  ta.x- 
able  liability  betwe«'n  the  twcj  jurisdictions;  none,  at  least,  so 
long  as  property,  not  inconu  ,  is  the  basis  on  which  taxation  is 
supposed  to  n'st.  The  practise  of  our  states  is  indeed  perfectly 
clear,  or,  rather,  the  letter  of  the  law  is  clear.  It  simply  ignores 
the  <lifliculty.  .Ml  mortgaged  property  is  taxable  to  the  full, 
and  it  is  ta.xed  to  the  full.  Claims  by  mortgage  creditors  in 
other  states  are  (piite  ignored.  .\n(l,  similarly,  the  mortgage 
notes  themselves,  when  they  are  a  lien  on  property  not  in  the 
same  but  in  unother  state,  are  taxable  in  full  where  the  crediior 
lives.  These  are  taxable,  l)e  it  noted;  which  is  very  fur  from 
saying  that  they  are  taxed.  Commonly  they  are  imt  reached 
by  the  tax  collector,  just  as  cori>orate  securities  are  not  reaclud. 

All  problems  of  this  sort  are  much  simplified  where  there  is 
not  one  single  form  of  taxation,  as  the  general  pmixTty  tax 
originally  was,  and  in  many  states  still  is,  -but  a  diversified- 
tax  system,  reaching  ditTerent  objects  (»f  taxation  in  dilTerent 
ways.  Suppose,  for  exatnple,  that  in  addition  to  t.ixes  on 
property  -either  on  real  jtroperty  alone,  or  on  other  forms  of 
projM'rty  also  — there  are  taxes  on  income.  It  may  then  ite 
reii.Honal)ly  laid  down  that  the  taxes  on  property  shall  be  paid 


IP. 


i 


MICtOCOPY   RiSCHUTION   TIST   CHAM 

(ANSI  and  ISO  TEST  CHART  No   2) 


150      ■•• 

■  2.5 

|»    |12 

JT 

u 

1^ 

i25  i  1.4 


1.8 


1.6 


A 


/-IPPLIED  IfyHGE 

'^•>'     (0^(     M,]-n     S(r».t 

i  'Mft;  ;m     son*)     tn« 


542 


TAXATION 


where  the  property  is.  while  those  on  income  shall  be  paid 
where  the  owueri..  Thus  in  Grout  Britain,  local  taxos(  rates  ) 
y,  here  tue  o  „,,.„,,rt v  •  in  addition,  the  owner  is  charged 

are  levied  on  all  real  proptriy  ,       ^^  > 

with  an  income  tax  on  his  income  from  the  real  P-  -  t>  •  . 
now,  a  British  subject  owns  real  property  m  the  l-"ted  S  to, 
or  shares  in  American  corporations,  he  is  taxed  m  Great  Britain 

0  dy  or/he  income  received  in  that  country  from  the    orei.n 
pi  "ty      If  our  states  had  not  only  the  familiar  property  tax 
UZr  taxes   as   well,   a  similar  division  would  be  much 
^m  ted.     Inheritance  taxes,  for  example,  such  as  our  stat. 

1  freely  adopting,  nii.ht  reasonably  follow  the  owner  and  e 
Lied  s,lly  at  the  place  of  his  residence;  ^^^f'^f^ 
tumdely    a    regards  this  form  of  tax,  the  practise  of  different 

^:  Oioth  Ameri..an  and  foreign)  is  by  no  "--  uniforn. 
The  prop<-r  place  for  U.-y  is  not  in  this  c..e  so  obvioush  s.;U  u^ 
by  the    ac't  of  resid.-.u-e  as  it  is  in  cas,>  of  mcome  taxe..     None 

1  less  the  satisfact.,ry  solution  of  the  problems  arising  from 
:mct;ngiurisdicti,.us,andin.leedofmai^othe.inp,     . 

lin-mce   is  made  much  e.sier  if  there  be  not  one  tax.  but  s.v 
':;       ;  s,  serving  not  only  to  reach  <lifferent  kinds  ot  per^ 
Z  i^eonies,  but  available  for  apportionn.ent  among  the  several 

^'1t!3.er  large  an.lin.p<.rtant  class  of  .'intangibU^^^^ 

sonal  property  consists  of  public  s.-curities,  issued  by  states  or 

hv  local  govcriunents.  ,  .  , 

■\,„  su'i  securities,  th..ugh  no  material  property  exists  to  which 

.uiything  analogous  to  stoppage  at  the  source  could  be  appluM  1, 

2  metl..>d  is  none  the  less  possible  of  application  with  the 
„,,st  absolute  ease  and  certainty.  An  income  tax  can  be  col- 
l,,t,Hl  from  the  holders  of  public  securities  m  this  slmple^t  of 
ways  A  tax  .m  their  capital  value  ouid  .onceival-ly  be  n.l- 
Xl  on  the  sam.  principle  --tl.  state  deducting  the     ax 

,,,,,,.  ,„vin.  th.  stipulated  interest.     YH  it  wou      obv,ou> 

,...  fatuous  for  any  public  body  to  undertake  ■■-.v«''-«;>        " 
.  .         J      J..1I..  I.. ■;,„!., I.  nroncrtv  under  our  Amen- 

can'sylon.  '  No  stall'' or  municipality  which  thus  taxed  .t« 


.[x^.l.'^yi. 


THE  GEXERAL  PROPERTY  TAX       543 

seouritios  at  one  or  two  or  throo  por  coat  on  tlu-ir  .-apital  value 
could  tlunk  of  markotins  its  senn-iti,..  V,,  no  n  dl v  .^ 
^-^  our  states  tax  tl....,,.iti.,i,,.nKuui;o;r^^;^^^.^^ 
at  just  .such  rates.  In  faet,  tlu,-  au-  hardlv  .ver  tax.,!  ^ 
wou  1  seennurdly  ro  need  rep,.ated  ..xp<.ri;uee  to        .:  't,^ 

opelessnej.or.oreaehin.1,a.n..      Vet  th.  p.-teuse  of      .  n« 

-us.d,,re.nau.ontlu.^ 

So  con,pk,e  and  ol.vious  is  th.  shan,,  (l,at,  in  recognition  of 
■'  ^"'•''"  r"-'^'"^  '-^  iufre,,...n,iy  are  .....pted  f.^n,  fua 

bond     at traet.ve  to  u.vestors.  has  lon^  ena.-ted  that  they 
I.a  I    K.  tax  free.     Our  .\,neriean  stafs  an.I  eities  are  tending 

to/oiIowth.M-xan,,I,,<..H.pu.,nH.odyeaN.uhtin.,ha    i      "^ 
^un  more  fron,  so,„e  slight   lo^erin,  of  the  rat;  of  i,.'.   ^^ 

hj..eanpossi,,,.....      r, dire,   taxation  of  the  , J.,: 

Jiold.  rs.      fhon,h  th..  .M-unti-s,  when  taxaM...  an-  usually  eon- 

thoy  .an    a..t  free,  and  ,h.  p..Ml,in,v  that  a  tax  mav  he  u 
-I...ed,y,.vi.dJ.sau.,T.et..ntherat...ri„;^ 
-■os^ors.n....kethen,.     Tax-exen.pt  ,..,  .an  h.  u.arK!" 
at  a  rate  of  „,t,.,vst   "-n.  ;  ,0  I  of  on.  p-r  e.nt  lower  than  on 
taxable  hon.Is.     The  ,.i„  to  th.  horrowin.  state  or  citv  i    nJ 
great,  hut  it  is  still  soniclhi.-,  " 

Vet  this  e.xenu.tion.  thou,irh,.tter  than  the  futil.  pretenso  of 

-uv.  the  seeuri,  i.s  on  ,h.  u.ual  phu  .,f  ,h.  An,eriean  prop..  V 
^''   ';,."•"*'.'    " — '•■''-der  a  n,on.  rational  sv  ten 

^;7'':'''^  7^^'''  -''••''•  '--i'i  r,,ri.,  under  a. .an.fuUvsten; 
of    tax,„..II    fu.,U.l    i„..o„,...    .,r   in. ..-yioldin,    prop.rtv. 

f  taxes  oth>s!.n.l(wlu.,herI..vi..d  with  re<p,.t  to  iL,Leo 
o  pr<.perty)  wer.  always  .t  a  uniforn,  n,,.-.  ,f,  for  ,.xan,pl. 
lHTewerea.e„n:dtav,n.,||y.,,,f,,,,,,,.,,,f  ,,,,,,,,,.,, 

Whether  ,t  secured  lhi«  deduction  from  the  stipulate<l  interest 


i 


544 


TAXATION 


i" 


i„  *e  ,o™  0.  a  tax,  or  -^^'^^^f  .^--rput  "'^T'^t 

r '.t"  r  „:;::;:  r;:.ir::rr*e  tax ... 

idciilny  in  tlie  o'"'^'"  ,  .(    ,|,pj  investments  were 

certain  to  be  always  th,  :"'">;;  '^'"'^i  ,|,^^^  „„„.,itions  is 
suLioeted  to  it  «,tl,oa    ta,l.     ^1-    -^^  •;^'  ^,  .,^„„i 

''":i;r,ri-r  r::irai.i:'«:r,,a.a,y ;.....,  no 

;  „  ir/'an  eonnnit  itse.t  inaeflnitely  to  unitorm.ty  m  as 

:   ^ions.    Financial  needs  must  vary;  — ;'- f  ™: 

,„„  l„  ..rise  •  changes  ami  rearrangements  ir  taxa- 

p-nncs  are  sure  to  ar™     .tag  ^^^^^         ^__^  ^^^^ 

'r"Ctr  M-m    *      -rr^lease,!  in.lefn.iteiy,  or  for  a 

:  r  io       tile  Tr  m  taxation,  slnus  the  .UK,r  to  the  future 

„    canl  ius  inert  only  by  extreme  finaneial  s,r,.«       Hen^o 
anil  can       j  ,.^^  ^^^j  „  p^ct- 

";;;;,:  cr.:;  i  : ;:;;  i!„e,.ucte,>  fro™  .he  stipulate,, 

;r  .t.  payable  to  the  owner  of  consols  and  the  like  govern- 
"  nTtSies-.  .he  rate  ot  .he  tax  varying  fmm  year  to  year 
ll  the  owner  being  suhiee.,  like  any  other  uwestor,  to  . 
variablp  dediu-tiou  from  his  im-omc. 

7    The  diffioulti.s  on..ount.rcd  in  the  attompt  to  tax  al 
ortv    and  e^ncciallv  tho  various  for.ns  of  secunt.cH,  point 
^r^iX' whith  .nm  »>o  secured  in  the  United  States 
;;  a  «;^^ral  (federal)  tax  on  incomes,  collect.l  by  stoppage  at 

''7Z2^  have  «reat  fiscal  an-l  ^^'^^^^'^^^^^^ ^^'^^^Z^ 
I„  uu.  lar^e  majority  of  ......  evasion  would  W  almt,s    u.ipns- 

,  :      vly.  Indies  and  corporations  could  m>t     ..  o  h.|W- 
\ll  „,v   it,   d..ductin«  the   amounts   fn>.n   the  bondholders 
,.  t   and   also    (directly  or  indirectly)    from  stockhoUler^ 
^aend^     True,  not  a  few  of  our  «reat  corp<,rations.  es,>enally 
\  1      ,K   .•.mtrxtcd  with  their  bondholderH 

the  railways,  have  alread>   .ontr.xt.a 

„.  p,v  any  and  all  tax.^^  nH  ..f  th.-.r  "-u  pock  K     n     ha^ . 
thJssurrn.dedtl.ri«h.of.l..duct.onwh.ch.^^^ 

woul.1  Kivo  then..     But.  ohv.,.u.i>    tn.n  ....  .^  Vnartii^ularW 
for  refrainiuR  fron,  the  tax.  lho..«h  .t  n...st  make  .t  particularly 


-m 


THE  GEIstUAL  I'KOPEHIV  T.VX 


54.3 


unwelcome  to  those  debtors  who  have  in  advance  contracted 
out.  The  corporations  presumably  got  the  benefit  of  their 
stipulation,  at  the  time  when  they  made  it,  in  the  form  of 
lower  interest  or  better  price  for  their  bond  issues.  Having 
made  their  i)ed,  they  must  lie  in  it. 

To  enter  into  details  on  any  sudi  legislative  plan  would 
pass  the  bounds  of  this  book.  The  scope  of  the  tax  would 
call  for  careful  consideration,  —  whether  to  confine  it  to  securi- 
ties only,  or  extend  it  to  all  long-time  investments,  such  as 
those  on  mortgage.  The  rate  would  have  to  l)e  moderute,  lest 
too  great  encroachment  Ijc  made  on  the  taxing  sphere  of  the 
several  states  and  local  Ijodies.  These  nuist  derive  a  large 
part  of  their  revenue  from  taxes  on  the  real  estate  ami  other 
property  of  the  same  coqwrat ions  and  intliv' duals  that  would  be 
subject  to  such  an  income  tax.  A  good  d(>gr(>e  of  comity 
between  the  federal  govermnent  and  th(>  states,  as  well  as 
between  the  several  states,  is  '>sseiitial  for  any  real  imi)r(,ve- 
ment  in  our  American  ways  of  taxation.  The  wiiole  |)roblem, 
difficult  enough  in  any  country,  is  here  complicated  by  liie 
conflicts  of  interest  between  the  dilTereut  jurisdictions.  A  mod- 
erate federal  tax,  at  a  rate  not  exceeding  two  per  cent,  on  in- 
vestors' incomes,  collected  l)y  stoppage  at  the  source,  would 
be  a  supplement  to  the  taxation  of  corporati.Mis  by  the  states, 
and  a  convenient  source  of  revemie  to  the  federal  gDvernment. 
The  rate  might  l>e  readily  varied,  according  to  financial  exigen- 
cies ;  while  yet  it  should  normally  be  low,  both  in  order  to  pre- 
vent encroachment  on  the  local  tax  resources  and  to  leave  room 
for  increase  in  times  of  financial  stress. 

Where  there  is  a  tangled  and  unsatisfactory  situation,  the 
temptation  is  strong  to  makf  out  a  |)rograin  for  reform,  In 
some  resjM'cts,  such  a  program  is  easy  to  iiiaUe  out  for  our 
American  tax  situ;  tion.  Kvery  (•oinpctciit  ohserMT  is  salisli...! 
that  our  traditional  syst<'in  should  be  given  up.  HciI  property 
alone  should  i»e  left  subject  to  the  established  property  tax. 
Other  sources  of  iucotne  should  be  rejiched  by  ilitTiiviit  iiwf  hods. 
But  there  is  no  cons(>nsus  of  opinion  on  the  precise  methods  to 

VOL.  II    -  2  N 


N 


;.V    . 


I 


f'  1! 


ti 


ir . 


546  TAXATION 

be  substituted.    A  federal  income  tax,  attractive  though  it  is  in 
many  respects,  is  opposed  in  many  quarters  and  on  tenahk> 
grounds.     Not  least  of  the  objections  is  that  the  federal  goyeru- 
Lnt  has  many  productive  sources  of  revenue,  and  should  leave 
the  di   .ct  taxation  of  incomes  to  such  states  as  care  to  under- 
take  it.     Hence,  the  amendment  to  the  federal  Const.tut.on 
L  an  unqualified  income  tax,  which  is  now  d^lO)  P- -S' 
has  strong  opponents  as  well  as  strung  supporters.     In  the^ta 
themselves,    there   is    advocacy   of   var.ous   plans:     complct 
exemption  of  securities  from  taxation;    -«-P^'«\«^  f^;^ 
securities,  but  not  of  all ;  taxation  of  the  mcome  but  not  the 
capital  value  of  securities;  taxation  of  tlunr  -P't^l  ->  -' j'^ 
at  a  moderate  nniforn.  rate.     To  enter  on  a  --'deration  of 
the  pros  and  cons  of  these  prc.posals  .s  miposs.ble  m  a  book 
like  the  present.     N.)t  only  the  strictly  econcmnc  f^n.l  fiscal 
CO  si  le  ations,  but  the  temper  and  preju.hces  of  the  different 
communities,   must    be  borne  in  nund      The  hues  on  .^h 
reform  is  likelv  to  proceed  seem  to  be  the  tollowmg     the  hm  - 
tation  of  the  general  property  tax  to  real  est..te,  w.th  the  pos.bb 
inclusion  of  bulky  and  easily  assessable  personal  y,  such  as 
machinerv;    the  imposition  of  separate  taxc.s  on  busmess,  m 
Te  wav  of  license  taxes  or  taxes  based  on  presumable  mcome 
from  business,  in  place  of  the  traditional  property  tax  ori  the 
stock  in  trade  and  other  personalty  of  merchants,  manufac- 
iurer..  l«aukers.  and  the  like  ;  taxes  on  corporations  with  respect 
to  the  whole  of  their  property,  with  due  apportionment  amo..g 
contlicliug  iurisdictions.  but  with  abandonment  of  the  attempt 
to  tax  dire.tlv  the  holders  of  securities  on  then-     propertv     , 
and   inheritance  taxes,   at    a   progressive   rate,   lev.ed  by  the 
states      As  possibilities  for  the  future,  well  worthy  of  careful 
consideration,  are  nuKlernte  taxes  on  unfun.le.l  incomes  by    he 
states,  and  a  nu^l.Tate  tax  on  incomes  from  secur.l.es  and  tht 
like    ,.olleet<Hl  bv  the  f-derul  Rovern.nent  through  stoppage  at 
the  source.    Con.pheatior.s  and  difficulties  cann..(  be  avoided; 

and   no  svstem   will    be  sai.M.uinry  XUUr:^:.  T:n..^. ^.     ^ 

tween    th.<   states   aiul   the    federal   governmeuts,   as   v^cil   as 
between  tlie  states  themselves. 


^^^ 


THE  GENERAL  PROPERTY  TAX 


647 


§  8.  One  important  and  difficult  question  of  principle  remains 
to  be  considered.  More  than  once,  in  the  preceding  sections, 
it  was  pointed  out  tiiat  a  tax  on  any  one  kind  of  investment, 
if  unfailingly  collected,  is  likely  to  he  in  some  way  shifted.  A 
tax  on  buildings  is  likely  to  be  shifted,  for  example,  to  the 
occupiers,  if  the  owner  is  depriv(>d  by  it  of  the  ordinary  return 
on  investments.  A  tax  on  mortgages  is  likely  to  be  shifted,  in 
the  form  of  a  higher  rate  of  interest,  on  the  borrower.  But 
all  this  assumes  that  the  owner  of  the  building  and  the  mortgage 
lender  have  an  avenue  of  escape,  —  that  other  investments  are 
available  for  them  which  yield  the  current  return.  Commonly 
enough,  in  the  actual  working  of  our  American  system,  alter- 
native investments  are  in  fact  available.  There  are  tax-free 
securities  in  the  way  of  corporate  shares  on  which  the  corporation 
has  paid  the  taxes;  there  are  tax-free  pul)lic  securities;  there 
are  securities  as  to  which,  though  they  are  taxable,  the  chance 
of  actual  taxation  is  negligible.  But  suijjwse  that  all  these 
alternatives  were  treated  in  precisely  the  same  way,  or  at  least 
with  precisely  the  same  efTeet,  by  taxation.  Suppos(>  that,  in 
whatever  direction  the  investor  turned,  he  wer(>  confronted 
by  a  tax,  and  a  tax  at  the  same  rate,  on  land,  on  buildings,  on 
mortgages,  on  corporate  property  or  securities,  on  public 
eecurities.     Could  the  tax  be  shifted  in  th.at  case? 

A  similar  question  was  much  discussed  by  the  economists  of 
a  century  ago,  as  to  the  out'-ome  of  a  general  tax  on  wag(>s. 
It  was  reasoned  that  such  a  tax  would  be  shifted.  The  laborers, 
it  was  thought,  got  as  wages  no  more  than  the  minimum  for 
support.  Laborers  siiajjly  could  not  be  taxed.  Taxes  levied 
on  them  would  necessarily  ea\ise  a  rise  in  wages,  and  so  would 
come  out  of  the  employers  ;  that  is,  out  of  the  profits  of  capitalists. 
The  same  results  were  exj)e('te<l  to  follow  fri)ni  taxes  on  the 
necessaries  consumed  by  the  laborers.  If  wirc-^  were  at  the 
minimum,  no  margin  would  exist,  and  wa-ris  would  have  to 
rise  enough  to  balance  the  inen>ased  prici"  of  the  necessaries; 
othf>nvi-o.  the  hil-orer-  \vi>\!'d  di'-  olT.  Hr>:"r,  h'X'--  on  neces- 
saries also  came  out  of  j)rolits. 


U 


548 


TAXATION 


It  is  not  worth  while  to  follow  this  sort  of  reasoning,  which 
engaged  much  of  the  thought  of  the  older  economists,  m  all  its 
intricacies.     Taxes  levied  directly  on  wages  or  on  wage  earners 
do  not  exist,  and  hardly  ever  have  existed ;  they  are  too  diffi- 
cult and  expensive  of  collection.     Taxes  on  food  and  other 
things  consumed  by  laborers,  whether  necessaries  or  comforts, 
are  common  enough  ;    but,  fortunately,  wages  are  not  so       .e 
to  the  minimum,  in  civilized  countries,  that  laborers  are  once 
for  all  unable  to  support  such  taxes.    They  do  pay  them,  though 
as  a  rule  thev  are  but  dimly  aware  of  it.     The  reasoning  about 
the  reactions  that  might  follow  from  taxes  on  wages  is  worth 
attention,  chieflv  because  it  raises  the  question  whether  in  all 
levies  of  this  kind,  whether  on  wages  or  on  interest,  the  tax 
collector  is  not  confronted  somewhere  by  a  minimum  beyond 
which  he  cannot  reach. 

That  precise  question  is  raised  by  the  supposition  just  made 
as  to  an  all-embracing  tax  on  property.     Such  a  tax  is  equiva- 
lent to  an  all-embracing  tax  on  the  incomes  from  property,  or 
from  all  funded  incomes.     Is  there  a  minimum  rate  for  such 
incomes?  in  other  words,  is  there  a  minimum  rate  of  interest? 
Suppose  that  a  rate  of  taxation,  such  as  is  supposed  to  be 
levied  under  our  familiar  property  tax,  is,  in  fact,  inexorably 
exacted.     Suppose  that  rate  to  be  two  per  cent,  and  the  or- 
dinary rate  of  return  on  safe  investments  to  be  four  per  cent. 
Then  the  net  return  remaining  to  all  investors  woul.l  be  but 
two  per  cent.     Would  accumulation  b.>  maintained,  and  would 
thesupplv  of  capital  continue  undiminished?   or  would  accu- 
mulation" lessen,  in  such  way  as  to  diminish  the  supply  of 
capital,  and  to  raise  the  nominal  return  to  six  per  cent,  so  that 
the  net   return,   aft.-r  paying  the  tax,  would  remain  four  per 
cent,  as  high  as  befon 

Experience  nlTords  no  answer  to  the  (luestion;  for  no  coun- 
try has  ever  tried  all-embra.-ing  taxes  of  this  kind  and  weight. 
The  taxes  which  com.-  nearest  to  iM'ing  all-embracing,  such  as 
the  income  taxes  of  lOngland  or  PrussiM,  huv  nrvor  Inen  levied 
in  civilized  communities   at  any  rates  which   really  apply  a 


THE  GEXERAL  PROPERTY  TAX 


549 


test.  An  income  tax  of  ton  per  cent  is  very  high  in  modern 
experience.  But  the  effect  of  such  a  tax  on  accumuhition  is 
certainly  negligible.  Suppose,  however,  the  tax  were  fifty  per 
cent,  rigorously  exacted  and  universally  applied :  would  accu- 
mulation be  checked  ?  We  cannot  answer  with  any  certainty. 
As  has  been  pointed  out  in  the  iliscussion  of  interest,  we 
cannot  be  sure  whether  the  rate  of  return  now  prevailing 
on  investments  represents  the  "productivity"  of  capital  or  the 
minimum  price  of  accumulation,  —  its  cost  of  production,  so 
to  speak.'  Somewhere  there  is  a  limit,  in  the  way  of  a  mini- 
mum ;  and  probably  it  is  not  far  from  the  lowest  rates  —  three 
per  cent  or  two  and  a  half  per  cent  —  which  have  been  reached 
in  some  periods  of  recent  history.  The  case  is  like  that  of 
taxing  inheritances.  At  moderate  rates,  they  do  not  check 
accumulation ;  at  extremely  heavy  rates,  they  make  the  sys- 
tem of  private  accumulation  and  private  property  unworkable. 
It  is  impossible  to  say  to  the  legislator,  precisely  so  far  shalt 
thou  go,  and  no  further  ;  yet  it  is  essential  that  he  bear  in  mind 
the  ultimate  limitations,  Icsl,  in  the  excess  of  zeal,  he  go  too  far. 


'  Compare  Hook  V,  ChuptiT  39. 


CHAPTER  70 

Taxes  on  Commodities 

S  1    Taxes  such  as  have  beeu  described   m   the  preceding 
chapters,  on    income,    property,    inheritance,    are    commorily 
spoken  of  as  direct  taxes.     By  this  phrase  is  meant  that  the 
legislator,  in  levying  them,  has  no  expectation  or  intention 
that  they  shall  he  shifted  to  any  other  persons  than  those  first 
called  on  to  pay  them.     Taxes  which,  on  the  other  hand,  are 
expected  to  be  shifted  to  otliers  are  called  indirect  taxes.     As 
we  have  seen,  the  so-called  direct  taxes  are  sh.fted  not  mfre- 
Quently;  but  they  are  not  levied  with  this  m  view,  and  the 
process  of  shifting  is  often  uncertain.     "Indirect ''taxes,  on 
the  other  hand,  are  levied  on  the  supposition  that    he  persons 
first  called  on  will  transfer  the  burden  to  others,  and  will  trans- 
fer it  with  tolerable  ease  and  certainty.' 

The  simplest  and  most  familiar  of  indirect  taxe  ,  are  taxes  on 
commodities.     Here,  again,  it  must  be  borne  in  .  md  that  the 
phraseology  is  loose.     Just  as  there  are  not,  in  strictness,  any 
taxes  on  property,  but  only  taxes  which  persons  owning  property 
are  compelled  to  pay,  so  there  are  no  taxes  on  commodities, 
but  only  taxes  levied  on  persons  when  they  deal  with  com- 
moditie;  in  a  particular  way.     A  tax  "'on  tobacco     may  be. 
for  example,  a  tax  on  the  .nanufaeturer  of  tobacco    evied  on 
th.  l,asis  of  the  number  of  pomids  of  that  article  as  they  pass 
out  of  his  factory.     A  tax  "on  sugar"  may  be,  as  it^  ornierly 
was  in  Germanv,  a  tax  of  so  mu.-h  per  hundredweight  of  the 
boets  used  in  making  thr  sugar,   collected  from  the  manu- 
facturer when  the-  beets  are  .lelivere.l  at  his  establishme.it      A 
fxx  "on  imports"  is  one  collected  from  merchants  and  others 

taxes  in  the  Coiintitutioii  of  tho  L'nUf.l  ^t:lt.■8. 

.').")0 


:^^!^ 


il 


TAXES   ON  COMMODITIES 


551 


on  the  occasion  of  their  bringing  articles  across  the  frontier 
from  other  countries. 

The  precise  stage  and  the  precise  way  in  which  these  various 
persons  are  called  on  to  pay  such  taxes  is  much  affected  by  the 
possibility  of  evasion.  Thus,  under  the  method  of  taxing  the 
beets  formerly  followed  in  Germany  (now  given  up,  for  reasons 
that  need  not  be  here  di.scussed),  evasion  was  difficult,  because 
beets  were  bulky,  aud  the  operation  of  bringing  them  to  the 
factory  could  be  easily  supervised.  The  method  used  in  our 
American  ta.\es  on  tobacco,  "igars,  beer,  spirits,  of  compelling 
the  taxed  person  to  buy  stamps,  and  to  affix  these  on  the  arti- 
cles at  a  given  stage  in  his  operations,  has  the  administrative 
advantage  that  the  articles  cannot  be  marketed,  in  case  of 
evasion,  on  any  except  the  smallest  scale;  since  the  absence 
of  the  stamps  would  inform  all  the  world  of  the  violation  of 
law.  Taxes  levied  on  importation  are  collected  with  great 
ease  in  modern  times,  because  the  regular  channels  of  trans- 
portation, by  railway  or  steamer,  are  extremely  cheap,  and 
smuggling  by  out-of-the-way  routes  ordinarily  entails  greater 
expense  than  evasion  of  the  duty  would  make  worth  while. 
In  the  eighteenth  century  the  situation  was  dilTerent,  and 
smuggling  was  a  factor  much  to  be  reckoned  with  in  the  ad- 
ministration of  import  duties. 

All  these,  however,  are  matters  of  detail,  often  very  im- 
portant detail,  to  be  dealt  with  in  special  books  on  taxation 
and  finance.  Our  concern  is  with  some  general  questions  as 
to  the  economic  effects  of  taxes  on  commodities,  —  that  phrase 
being  used  for  brevity  to  describe  the  taxes  levied  in  the  various 
ways  iust  indicated. 

§  2.  Consider  first  the  simplest  case :  an  internal  tax,  or 
excise,  imposed  at  some  stage  in  thi'  production  of  a  com- 
modity. A  stage  in  manufacturing  operatious  is  in  fact  usually 
chosen,  because  manufacture  means  concentration  of  opera- 
tions, and  hence  ease  of  supervision.  Supp<)S(>  tlie  commodity 
t.n  be  one  produfcd  und'T  ihr  <'o?viitio!v-  '-f  mn-tant  co-t  and 
of  free  competition.     Then  the  effect  of  the  t.ix  is  simple.     In 


;  I 


iffl 


i 


552 


TAXATION 


•.,:if" 


the  long  run,  the  price  of  the  commodity  will  be  raised  by  the 
amount  of  the  tax.     The  producer  ^^dll  shift  this  amount  on  the 
consumer,  and  the  real  burden  vnW  thus  fall  in  toto  on  the  latter. 
This  result  will  not  be  necessarily  reached  at  once.     Ihe 
first  effect  of  the  tax  is  to  add  so  much  to  the  manufacturer  s 
expenses  of  production.     He  will,  of  course,  desire  to  raise  his 
price  so  as  to  make  good  the  additional  expense.     In  strict 
theory,  he  cannot  do  so  except  in  consequence  of  a  decrease  in 
supply      Price  is  determined  directly  by  the  equilibrium  of 
demand  and  supply  (or,  in  more  technical  language   by  mar- 
ginal utility),  and  it  will  not  rise,  the  conditions  <>J  den,and 
remaining  the  same,  unless  supply  be  lessened.     But  the  higher 
expenses  .:  production  and  diminished  profits  ^vlll  tend  to 
lessen  supplv ;    and  normal  equilibrium  will  be  restored  when 
the  manufacturers  are  again  getting  their  usual  returns,  vvith 
lessened  output  and  higher  price.     Evidently  the  exten   of  the 
eventual  change  in  the  volume  of  output  depends  on  the  elas- 
ticity of  the  demand  for  the  article.     The  result  may  even  be 
reached,  under  some  not  improbable  circumstances,  without 
any  change  in  supply  at  all.     In  a  growing  country,  or  for  a 
commodity  for  which  demand  is  growing,  there  may  be  no 
actual  decrease  in  supply,  but  only  a  cessation  of  mcrease. 
Demand  is  simply  allowed    o  catch  up  with  the  new  situation 
All  this  supposes  that  the  industry  is  in  a  normal  st     -  at 
the   time   when   the   tax   is   imposed,  -  that    the   capitalists 
engaged   in   it   are   making  normal  profits,  and  will  be  led 
to  hssen  their  output,    some  of  them  perhaps  even  to  with- 
dra\.'  entirely  if  their  profits  are  cut   down.     But  it  is  per- 
fectly  possible  that  a  tax  may  be  imposed  at  a  tune  when  an 
industry  is  unusually  profitable.     Then  its  effect  may  be  ap- 
parently on  the  pro<lucers  only  ;  they  may  be  able  to  pay  the 
tax   and  still  sell  to  consumers  at  the  ordinary  profit.     W  hat 
happens  in  such  cases  is  not  that  the  consumers  pay  a  higher 
pri,.e.  but  that  they  are  prevented  from  getting  the  lower  price 
which    competition    would    eventually    have    bruUfeiit    about. 
This  process  is,  of  course,  much  more  convenient  to  the  producers 


m. 


TAXES  ON  COMMODITIES 


553 


than  that  of  imposing  a  tax  when  an  industry  is  in  its  normal 
state ;  but  evidently  it  constitutes  no  real  exception  to  the  rule 
that  the  tax  .'eventually  falls  on  the  consumer. 

Some  industries  are  so  much  of  an  aleatory  sort  that  the  work- 
ing of  competition,  and  therefore  of  taxes,  on  their  products  is 
irregular  and  uncertain.  Tliis  seems  to  be  in  no  small  degree  the 
situation  as  to  breweries,  whicii  depend  for  the  sale  of  their 
product  very  much  on  reputation,  trade-mark,  and  the  control 
of  dramshops.  A  brewery  is  ajit  to  be  either  a  highly  profit- 
able enterprise  or  a  disastrously  losing  one ;  much  as  is  the 
alternative  in  the  case  of  a  large  hotel  or  a  city  newspaper.  A 
tax  on  beer  at  a  moderate  rate  is  likely  to  be  swallowed  up  in  the 
oscillations  of  brewery  expenses  and  profits,  and  to  have  hardly 
a  noticeable  effect  on  the  retail  price  of  the  brewerage.  Simi- 
larly, a  reduction  in  an  existing  tax  may  si.nply  lessen  the 
brewer's  expenses  by  so  much,  and  not  affect  the  retail  price. 
Evidently,  this  would  be  true  only  of  moderate  charges.  A  large 
increase  or  decrease  of  tax  woukl  be  felt  by  the  consumer  without 
question.  And  even  moderate  charges  would  necessarily  show 
their  effects  in  time,  though  very  likely  not  so  much  in  altered 
retail  prices  as  in  a  decrease  or  increase  (as  the  case  may  be)  of 
the  customary  contents  of  the  glass,  or  in  a  better  or  worse  qual- 
ity of  the  contents.  Here,  as  in  almost  all  economic  phenomena, 
we  have  to  deal  with  tendencies  that  work  out  their  results 
more  or  less  slowly,  and  in  ways  often  obscure.  It  is  to  be  said, 
however,  that  taxes  work  out  their  effects  on  prices  more  quickly 
and  surely  than  some  other  influences,  such  as,  for  example, 
improvements  in  production  or  deficiencies  in  the  supply  of 
materials;  since  taxes  are  notorious,  and  the  attention  of  all 
producers  and  dealers  is  at  once  fastened  on  them. 

§  3.  Consider  now  some  other  c.nses,  less  simple.  The  taxed 
commodities  may  l)e  produced  under  the  conditions,  not  of 
constant  returns,  but  under  those  of  increasing  or  of  diminish- 
ing returns ;  or  they  may  l)e  subject  to  a  monopoly. 

The  strict  theory  of  these  cases,  again,  is  comparativrly  eaHj- 
to  work  out,  being  only  an  application  of  the  general  theory 


i\ 


554 


TAXATION 


of  valuc.«    A  tax  on  a  commodity  produced  under  dimmishmg 
returns  may  not  raise  its  price  by  the  full  amount  of  the  tax. 
A  rise  in  price  can  come  only  with  a  .lecline  m  quantity  pro- 
duced.    But,  in  the  case  of  diminishing  returns,  a  decline  m 
quantity  produced  means  a  recession  of  the  margin  of  cultiva- 
?ron,  and  a  lowering  of  marginal  cost.    The  effect  of    he  tax  in 
raising  normal  price  is  therefore  partly  offset  by  the  lower  cost 
due  to  less  pressure  on  the  sources  of  supply.     Conversely,  a 
tax  on  a  commodity  produced  under  increasing  returns  may  not 
only  raise  its  pri...,  but  raise  it  by  more  than  the  amount  of  the 
tax      In  tlv ,  case  the  rise  in  price,  by  checking  consumption 
and  lessening  the  amount  produced,  causes  the  -«t  per  un-t 
to  advance,  an.l  so  the  pri.v  to  rise  st.U  further.     The  .same 
Hort  of  reasoning  la.y  be  applied  to  the  renussion  o   an  exis^n^ 
t.x     Where  the  remission  is  on  a  commodity  produced  under 
diminishing  returns,  it  is  likely  to  increase  consumption.   '-, 
l.ring  pressure  to  bear  .m  the  sources  of  supply,  to  ra-se  marginal 
c-ost    and  so  to  lower  price  by  less  tlian  the  amount  of  the  tax 
remittal.     On  the  othrr  hand,  a  tax  remitted  und.r  .ncreas.,.g 
returns    by  stimulating  consumption  and  output,  is  hkely  to 
,au.e  a  decUiic  in  co.^t  pc-r  unit,and  so  a  fall  in  pricegreater  than 
the  mere  remission  alone  would  have  brougtit  about. 

\  tax  on  a  mom.poli/cd  article -to  pursu.-  the  theory  of 
tlu'se  cases  -  is  not   .shift.-.l   under  the  same   influences  and 
nrobablv  not  to  the  same  degree  as  a  tax  on  an  arlicle  produced 
under  free  competition.     A  tax  .lirectly  on  monopoly  profits 
oannot  b.-  shifted  at  all,  just  as  a  tax  on  economic  rent  cannot 
1,,  .hift.Ml  at  all.     The  monopolist  presum.-.bly  will  have  m  - 
i„.te,l  his  .Mitput  in  .such  a  way  as  to  secure  the  maximum  profit, 
•   .,  .^s  tlu'  owner  of  an  ,ulvantHgeous  plot  of  land  presumably 
till  have  got  the  maximum  rent  ;  an.l  lax  levied  .lirectly  on 
„„„,,polv  profits  or  on  rent  does  not  <.p..n  any  possibility  o 
„,justing  n.atters  in  a  n.ore  lucrative  way.     The  monop..h>t 
or  huidowner  nmst  b,.ar  the  tax  with  the  best  grace  he  ean. 

■  «„  ,bc  .UUn,.»,  ..(  tluH  theory  iu  liouk  ll,..l..HMly  Cl.-tcr.  12.  13,  U, 
16. 


iWP*"l 


:c'.yaQn,'ju*^triBP.'<>MW/'.A«-^«^ 


TAXES  ON  COMMODITIES 


655 


But  a  tax  on  a  monopolized  commodity  is  not  the  same  as  one 
on  monopoly  profits.  It  is  a  tax  per  unit  of  output,  not  on  the 
net  monopoly  gains.  The  tax  on  the  commodity  is  much  easier 
to  levy,  since  it  is  comparatively  simple  to  ascertain  what  the 
output  is.  It  is  voF}'  difficult  indeed  to  measure  monopoly 
profits  with  accuracy,  and  correspondingly  difllcult  to  as«ess  a 
tax  simply  on  the  monojjoly  gains.  The  tax  on  the  monopolized 
commodity,  however,  though  simple  and  comparatively  certain 
in  its  financial  outcome,  is  much  more  unceri  lin  in  its  eventual 
result  on  prices.  It  afTects  at  oncc'  all  the  calculations  of  the 
monopolist.  His  expenses  of  jmnluction  per  unit  rise.  If  ho 
tries  to  raise  his  price  corrcsjiondingly,  he  will  almost  surely 
have  to  face  a  decline  in  c()iisunii)tion.  If  demand  is  elastic, 
this  decline  in  consumption  may  l)e  considerable,  and  he  is 
likely  to  slioulder  tiie  tax  in  good  jiart  {i.e.  not  raise  his  price 
by  the  full  amount  of  the  tax)  rather  than  incur  the  decline  in 
profit  from  a  lessening  of  sales.  If  deinantl  is  inelastic,  that  is, 
if  a  rise  in  price  checks  his  sales  but  little,  he  is  more  likely  to 
be  alile  to  shift  a  large  part  of  the  tax  on  the  cimsumers. 

Theoretic  reasoning  on  this  topic  may  be  easily  pushed 
further  still.  The  monopolist  may  be  conducting  his  business 
under  constant  returns,  or  diminishing  returns,  or  increasing 
returns.  His  calculations  will  lie  accordingly  affected.  If  he 
is  producing  under  diminishing  n  turns,  a  tax  and  a  rise  in  price, 
and  a  check  in  consumption,  will  be  less  unwelcome  to  him  ;  since 
with  a  lesseneil  (juantity  he  will  also  have  lessened  costs.  If, 
on  the  other  hand,  he  is  imMhicing  under  increasing  returns, 
n  rise  in  price  and  a  conse(pient  decline  in  consumption  and 
output  will  be  very  uiiwelconie  to  him;  since  it  will  bring  an 
increase  in  his  cost  jier  unit.  If  we  suppose  him  to  iHMiiiitc  un- 
fettered in  his  monopoly,  rigorously  determined  on  the  extrac- 
tion of  the  utmost  profit  possible,  and  thorougldy  informed 
both  as  to  th(>  conditions  of  demand  and  as  to  his  own  increas- 
ing or  diminishing  costs.  -  -  then  he  has  a  very  pretty  prol)lem 
before  him  in  readjusting  his  supply  and  his  price  after  the 
imposition  of  the  tax,     Uc  may  be  sup|)osed  to  call  nuitliemut- 


If 


556 


TAXATION 


I-  i 


ical  formute  to  his  aid,  and  to  work  out  with  exactness  how 
far  it  will  be  to  his  advantage  to  submit  to  some  part  of  the  tax, 
how  far  to  shift  part  of  it  to  consumers. 

The  very  statement  of  this  last  case  points  to  an  important 
limitation  on  the  value  of  all  such  analysis.    There  is  danger 
(,f  making  an  intellectual  plaything  out  of  intricate  reasonmg 
on  the  play  of  demand,  varying  costs,  taxes,  ami  the  like. 
Some  economists  have  given  no  small  share  of  attention  to 
problems  of  this  kind,  forgetting  that  their  reasomng  is  purely 
hypothetical  and  that  there  is  little  that  corresponds  to  it  in 
the  concrete  facts  of  life.     All  economic  principles  hold  good 
only  in  the  rough.     Semi-mathematical  reasoning,  even  pure 
mathematical  reasoning,  not  infrequently  aids  in  bringing  out 
with  df  arness  the  un.lerlying  principles ;   but  it  can  rarely  be 
pushed  with  advantage  into  details.     It  cannot  be  so  pushed 
with  reference  to  the  incidence  of  taxes, -neither  as  to  the 
modifications  of  incidence  due  to  increasing  or  diminishing  re- 
turns, nor  as  to  t  he  effects  of  taxes  on  monopolized  articles.     In- 
creasing  or  diminishing  returns  show  themselves  slowly  and 
irregularly,  an<l  over  long  periods.     Taxes  on  commo.lities  af- 
f(>eted  by  these  varying  <'onditions  are  maintained  only  in  very 
few  cases,  if  in  any.  at  a  uniform  high  rate  for  so  long  a  time  as 
to  influ(>nc(>  sensibly  marginal  cost.    For  most  i)ractical  purposes, 
we  may  content  ourselves  with  \\w  simple  result  reached  at  the 
outset,  under  the  supposition  of  constant  return-*, —  a  tax  on  a 
comi.KMlity  tends  to  be  shifted  to  the  ccmsumer  by  its  full 
amount.     And  in  the  same  way  we  can  dismiss  most  of  the 
c(,inplicate.l  reasoning  us  to  the  working  of  tax<>s  on  those  com- 
modities which  are  commonly  spoken  of  as  mon..i>olized.     It 
has  been  noted  elsewhrir  '   that   roiMi)lete  mo..op.)ly  is  rare. 
Those  cases  ir    .hi.'h  monopoly  is  sui)posed  to  exist  are  almost 
invariably  much  limil.d.  -   limited  by  substitutes,  by  ix.len- 
tial  competition,  by  public  opinion,  l>y  force  of  law.     A  tax  on 
commodities  pro. luced  by  a  (luiusi-moiiopoly  is  not  shifted  with 
,1         , _...:.,(..,..->!"■ '!«>"»i '><•'>'"!>"■< itivf  article  ;  but  there 

1  S.r  II.H.k  II.  rtiHpt.r  !.'•,  i  H 


TAXES  OX  COMMODITIES 


557 


is  a  strong  probability  that  most  of  the  tax  will  be  shifted  in  the 
same  way.  This  sort  of  rough  and  general  conclusion  is  alone 
in  accordance  with  the  usual  state  of  the  facts ;  and  it  sufTice.s 
for  the  guidance  of  the  legislator. 

§  4.  Taxes  on  imports  present  no  peculiarities,  so  far  as  taxa- 
tion proper  is  concerned.  Tiiey  are  simply  one  form  of  tax(>s 
on  commodities,  and  what  has  been  said  in  the  preceding  sec- 
tions applies  to  them.  They  are  commonly  shifted  to  the  con- 
sumer,  and  are  meant  to  be  so  shifted.  In  the  controversy 
about  protection,  zealous  advocates  of  high  duties  are  led 
occasionally  to  maintain  that  taxes  on  imports  are  borne,  not  l)y 
the  domestic  consumer,  but  by  ihe  foreign  producer.  This  may 
sometimes  be  the  case,  just  as  it  is  sometimes  the  case  that  an  in- 
ternal tax  is  borne  for  a  longer  or  shorter  period  i)y  the  producer, 
and  not  the  consumer.  Occasionally,  where  the  [)roducer  (donK^s- 
tic  or  foreign)  has  a  monopoly,  he  may  bear  a  part  of  the  tax, 
—  conceival)ly  may  b(>ar  the  largest  part  o'  it.  Sometimes,  he 
seems  to  lu-ar  it,  though  he  does  not  do  so  in  fact.  He  sells  the 
commodity  at  the  same  nominal  price,  but  with  shorter  measure 
or  poorer  (juality.  Most  often  of  all,  the  sanit'  unconcealed  and 
simple  result  ensues,  both  from  internal  tax<'s  and  customs 
duties,  —  the  conunodity  rises  in  price  by  the  full  amount  of 
the  tax. 

The  peculiarity  of  duties  on  imixirts  is  merely  that  they  may 
bring  into  the  market  ;i  rival  untaxed  supply.  Levied  strictly 
wit!,  a  view  to  tlu'ir  elTeets  as  taxes,  import  duties  should  always 
be  aecompanie(l  l)y  internal  taxes  at  the  same  rates  on  tlx-  sime 
commodities.  If  this  is  not  done,  domestic  production  may 
spring  up,  even  thoii^rh  the  domestic  i)n>ilucers  cannot  bring  the 
article  to  market  iit  as  low  a  price  as  it  could  be  importe(l  for, 
in  the  ai)sence  of  the  duties.  Whether  such  -i  stimulation  of 
domestic  production  is  wise  or  not,  rai.-es  fh(>  whole  (piestion, 
already  suflieienlly  discussed,  of  the  elTect  of  prot<'ctive  duties.' 

§  5.  Though  the  consumer  almost  always  pays  taxes  on  com- 
JiiuihlUN,   he  i,  roiiiiiioiiiy  iittii-  aWale  uf  it,     Tlic  tux  if  paid 


I  .Sll    lIlM.k    IV 


('HiMH'iiilly  ("hii|iliTs  .1(1.  .'IT 


558 


TAXATION 


by  him  in  the  form  of  a  higher  price.     When  a  given  price  level 
is  established  for  any  conunodity,  people  get  u-scd  to  it  as  the 
going  rate,  and  pay  without  grumbling.     If  every  purchaser 
had  to  haml  out  directly  two  cents  each  time  he  bought  a  pound 
of  sugar,  or  was  called  on  to  pay  a  tax  of  two  dollars  e.   h  tune  he 
l,ouglit  a  suit  of  woolen  clothes  (such  are  roughly  the  rates  a 
which  American  consumers  of  these  articles  have  been  taxec 
for    forty   years), -we  may  be  sure  that  a  mighty  pro  es 
would  arise.     The  fact  that  such  taxes  are  concealed  and  but 
half  understood,  makes  them  tempting  for  the  legislator     He  is 
constantly  confronted  by  demands    for  heavier  outlay,  and 
vet  finds  the  pubUc  willingness  to  bear  new  burdens  lagging  be- 
hind its  demands  for  greater  public  services.     He  is  like  y  to 
turn  to  the  taxes  which  will  yield  the  largest  revenue  with  the 
least  protest.     Such  are  taxes  on  commodities. 

Obviously,  commodities  which  are  produced  in  the  greatest 
quantities  are  those  likely  to  yield  the  largest  revenue;    and 
these,  again,  are  likely  to  be  conmiodities  consumed  m  larger 
proportion  by  the  poor  than  by  the  rich.     IIen<.e  most  taxes 
on  commodities  tend  to  be  m,t  even  proportional;    they  are 
regressive.     A  poor  man,  doubtless,  will  not  purchase  as  much 
sugar  as  a  rich  one ;  but  he  will  spend  a  larger  share  of  h.s  m- 
come  on  sugar;    and  a  tax  on  such  a  conmuKlity  bears  more 
heavily  on  him.     It  is  doubtless  not  imposs.    e  to  select  fo 
taxation  commodities  use.l  chiefly  by  the  well-to-do  and  tlu 
rich,  such  as  -M-es  and  champagne.     Hut  taxes  of  tins  kmd  are 
rarely   pro.  of   much   revenue.     The   very   fact  that   a 

pnson  is  rich  hrmgs  it  about  that  he  diHtribut.'s  lus  expend.ture 
over  many  things,  and  buys  and  c.msmnes .  .Mumratively  htt  e 
of  any  one  thiug.  Taxes  on  luxurious  urticl.  hen.-e  are  l.kely 
to  yield  only  driblets  of  reyenue,  and  to  be  ex,.  ..s.ve  of  admin- 
istration. The  lucrative  revenue-v.elders  are  the  staples  con- 
sumed in  great  amounts,  and  consumed  chiefly  by  the  mass.s 
Su.l.  are,  to  mention  articles  now  much  taxed  in  cv.lued 
countri.'s,  sugar,  tea.  c.lfee.  petroleum,  tobacco,  beer,  >vme, 
spirits.     On  the.se.  to  repeat,  the  taxes  are  commonly  regressive. 


TAXES  OX  COMMODITIES 


559 


Two  sets  of  articles  among  those  just  mentioned  are  usually 
subjected  to  taxes,  whether  excise  or  customs,  at  an  especially- 
high  rate,  —  alcoholic  liquors  and  tol)acco.  It  is  supposed  that 
a  decline  in  their  (•()nsumption  is  to  he  desired  rather  than 
regrett(-d,  and  that  taxes  may  i)e  imposed  on  them  without 
compunction.  This  attitude,  to  he  sure,  does  not  go  far  to 
explain  the  taxation  of  tobacco,  nor  that  of  wine  and  l)eer  on 
the  Continent  of  Europe,  where  these  beverages  are  univer- 
sally used  and  not  greatly  abused.  Sinii>le  fiscal  convenience 
is  the  ina  n  factor.  For  whatever  reason,  large  revenues  are 
secured  in  almost  every  civilized  country  from  such  taxes. 
They  are  made  to  yield  proliably  the  very  largest  revenue  by 
creating  fiscal  monopolies.  That  is,  governments  undertake 
their  manufacture,  or  at  least  their  side  at  wholesale  or  retail, 
and  prohil)it  all  individuals  from  engaging  in  the  l)usiness  thus 
appropriated.  Prices  are  diarged  to  purcha-^ers  whicli  are  so 
high  as  to  bring  large  profits ;  the  result  for  i-onsumiTs  being 
the  same,  though  reached  by  a  different  process,  as  that  of  taxing 
the  commodities  in  tiie  oniinary  ways.  Tobacco  is  a  fiscal 
monopoly  in  France,  Italy,  Austria.  Spain,  and  other  countries. 
Spirits  are  a  fiscal  monopoly  in  Russia  anfl  in  Switzerland. 
Salt  is  a  fiscal  monopoly  in  Austria  and  Italy.  This  method 
has  the  advantage  that  evasion  is  easily  detected  ;  the  very 
fact  that  any  private  individual  conducts  the  business  at  all 
is  proof  that  he  violates  the  revenue  hiw.  On  the  other  hand, 
the  system  is  open  to  all  the  olijections  to  l)ureaucratic  admin- 
istration, and  in  particular  is  the  more  unsuitable  as  tlie  civil 
service  is  ill  organized  ami  the  g(>neral  tone  of  pul>lic  adminis- 
tration is  lax. 

Custom. '  fluties  are  made  more  easily  applicalile  to  n  lingi" 
and  varied  list  of  nrtichs  than  excise  taxi's.  Supervisidii  nee(l 
not  extend  over  (lie  \  hole  land;  il  r:\\\  be  I'miiled  to  llii«  ports 
of  entry  into  the  ( oiinlry  This  eireimi-taiiee  go4's  far  to  explain 
(he  wide  pres'.ilence  of  protective  duties.  They  are  a  conven- 
ient way  of  gittiiig  revenue.  (Mice  adopted  for  revenue,  tlieir 
iiicidentid  elTt cts  on  the  cour.-e  of  doniesti    industry  are  at  first 


i 


n 


560 


TAXATION 


overlooked,  and  then,  when  they  have  established  themselves, 
are  welcomed.  The  list  of  articles  on  which  customs  duties  are 
now  levied  in  the  United  States  is  an  extraordinarily  wide  one, 
covering  some  1500  different  things.  It  would  be  out  of  the 
question  to  levy  excise  taxes  on  any  such  list. 

In  fairness,  it  is  to  be  said  of  the  customs  duties  in  the  United 
States,  as  they  have  developed  under  the  extreme  protection- 
ist system  of  recent  years,  that  their  incidence  is  not  so  clearly 
bad  as  is  commonly  the  case  with  excises.     Tea,  coffee,  cocoa, 
are  free  of  duty.    Sugar  is  the  only  dutiable  article  of  food  whose 
taxation  is  clearly  regressive.     What  is  true  of  sugar,  is  prob- 
ably true  also  of  wool,  the  duty  on  which  is  perhaps  the  most 
objectionable  of  all  the  existing  (1910)  protective  duties.     As 
rogarus  manufactured  commodities,  it  happens  that  many  are 
not  affected  by  the  duties,  directly  or  indirectly.    The  commoner 
grades  of  cotton  goods,  for  example,  are  produced  as  cheaply 
within  the  country  as  abroad ;  they  would  not  be  imported  m 
any  case ;  the  duties  on  them,  though  they  stand  on  the  statute 
book,  are  merely  nominal.     The  finer  grades  of  cotton  fabrics 
are  largely  imported,  or  are  made  within  the  country  under  the 
shelter  of  the  duties.     The  prices  of  these  are  raised,  and  a 
real  tax  is  imposed  on  consumers.     But  the  consumers  are,  if 
not  wholly,  at  least  to  a  great  degree,  the  well-to-do  and  rich, 
and  the  taxes  are  in  so  far  not  open  to  the  objection  of  bearing 
with  special  weight  on  persons  of  small  means.     The  same  is 
prol)ably  true  (.;  the  duties  on  other  textiles,  such  as  woolens  ami 
silks;   though  as  to  theso  it  is  not  so  clear  that  the  duties  on 
the  cheaper  qualities  are  merely  nominal.     The  main  objection 
against  our  r<''gim(<  of  high  protection  is  not  so  much  that  it 
causes  disiiroportionute  burdens  on  those  least  able  to  pay,  as 
that  it  gives  a  disadvantageous  direction  to  the  productive 
energies  of  the  conununity. 


!i— WPPWBIIPS 


TAXES  ON  COMMODITIES 


561 


References  os  Book  VIII 

C.  V.  Bastable,  Public  Firmnce  (2(1  ed.,  ISO")),  covers  the  whole 
field,  and  is  able  and  well-judged,  though  not  attractively  written. 
Among  foreign  hooks,  K.  J.  Kheberg,  FituimwU'^cHachaft  {new  ed., 
1909),  is  a  good  l)ook  of  the  German  typo;  and  P.  Leroy  Beaulieu, 
Science  diti  Financta  (new  cd.,  liXKJ),  is  an  able  French  book,  full  of 
good  sense  and  information,  but  not  strong  on  some  questions  of  princi- 
ple. On  progression,  tiie  view  presented  in  Chapter  GO  is  similar  to 
that  of  A.  Wagner,  Fin'uuwissenschaft,  Vol.  II,  §  ;{9(i  neq.  (ed.  of  1880), 
and  is  different  from  that  in  E.  R.  A.  Seligman's  Pn></ny.4-:  Taxttlioii 
in  Theory  and  Practice  (new  ed.,  1908).  The  la.st-named  writer's  In- 
come Tax  (1911)  is  an  excellent  survey  of  legislation  and  experience; 
and  in  his  Esmys  on  Taxation  (new  ed.,  1911),  there  is  a  valuable  dis- 
cussion of  the  American  property  tax  system. 


'I 
i  I 


VOT    11-  2  o 


.\Lrv-Jj 


avtca-vnHMSMk^  kur^M  'iirvty  t^'smtrii^wMtn, : 


IXDEX 

(Reference  should  also  be  made  to  the  analytical  Table  of  Contents  at  the 
begiuniug  of  Volume  I.) 


"Ahility"  priiK'iilc-  (,f  taxation,  ii,  4SS. 

Abstiiicnco  in  relation  to  intf-rost,  ii, 
41  ;   under  socialism,  ii,  457. 

Arcidont,  insurance  acainst,  ii,  .3l':{  ■ 
bail  le^al  situation  in  United  States, 
ii,  :«.5. 

Acworth,  ii.  47s. 

Ad.ims,  T.  S.,  ii.  .'J.j!). 

Advances  to  laliorers,  in  relation  to 
caijital,  i,  74. 

Advertising,  and  larse  s^  ale  produc- 
tion, i,  .")  t,  it') ;  how  far  serves  a 
Rood  purpose,  i,  L'O,  ii,  4JS. 

Aurarstant,  arRunienf  for  in  Clerninnv. 
i,  r,,'J4. 

Ajiricultural  iniiilenients,  statistics  on 
nia.iuifacture.  i.  I'.t. 

AKricultural  land,  incidence  of  taxes 
on,  ii.  517.  5.S5. 

Auricnlture.  no  tendcnej-  ti>  larffc  scale 
production,  i,  ."ili ;  subject  to  diniin- 
isliiim  returns,  i.  ISO;  i'oo|icratioti 
in,  ii,  .'{51,  ^ioli ;  i"isition  under  so- 
cialism, ii,  44V. 

American  specie,  in  sixteenth  ccnturv, 
i,  24S,  L'55. 

American  SuRar  IJefininj;  f'ompriny, 
sec  Sunar. 

American  Toli.acco  f'ompany,  i,  fi'J, 
ii,  :isii.  I'.'S. 

Andrew,  A.  P..  i,  4  15. 

Anthracite  coal,  t<'ndcncy  to  over- 
production, ii.  5'J :  diminishitm  re- 
turns  in   iniui's,   ii.   !I5. 

Appreiitii'c^hip  .ilisolet".  i.  Ki.'f, 

Arliitration.  .«i.  Contents,  eh.  57. 

.Xrkwri^'ht.  i.  .'tl. 

Armv  and  N'avv  Stores,  ji,  ;{(7. 

Ashley,  W.  .1..  i.  517. 

.Assimiats.  i.  .'ji:f 

Astor,  J.  ,?..  ii,  m. 

Atkinson.  I''.  .1,,  i.  2t7. 

Ai:::tr:iii:i,  i-r.'.d  .'ii-,-,-ivrrir.~  in.  5,  25S, 
-70,  4  t'J ;  effects  on  forcian  i'\- 
ehaiiKes,  i,  474  ;   labor  leiiishition  in. 


ii,  302,  317 ;  old  age  pensions,  ii,  332 ; 

railways,  ii,  412. 
.\ustria,     pe<'uliar    position    of    silver 

florin,  i,  324. 
.\xes,  conventional,  used  as  money,  i, 

23(1. 


BabbaKc,  i.  110. 

Hailey,  ii,  2 Hi. 

Hank  Act  nf  1S44  (En(jl,-nd),  i,  305, 417. 

"Hank  money,"  i.  3!)3. 

Bank  notes,  arc  <  rjutents,  chs.  24  to  '_'S  ; 

effect  of  small  denominations,  i,  335, 

4.35. 
Hank  of  EuKland,  description  of.  i.  305  ; 

Iiolicy  of.  durini;  crises,  i.  30'J.  414, 

422.  431  ;   how  gold  bullion  prnvidc<l, 

i.  453. 
Hank   of   France,   notes    inconvertible 

yet    not    depreciated,    i.    321,    302; 

description   of.   i.   301. 
Hank  of  (e  rtnan.\ .  fir  Ueichsbank. 
Hanks  of  the   I'nitcd  States,  first  and 

second,  i.  3!l7  ;    rifects  on  domestic 

exc  liance.  i.  407. 
liarini;s.  i.  (15.  332,  415. 
Harnett,  ii.  ;;5!t. 
Hastable.  C.  l'.,  i,  .54(1.  ii.  501. 
Bedford.  f)uke  of,  ii,  S7,  99, 
Bedford  levl,  li,  70. 
Berlin,  birthrates  in  different  quarters, 

ii.  227. 
Bernstein,  ii.  475. 
Hertill..n,  ii.  210.  228. 
Bess.nicr.  i.  11)7.  ii.  1(IS. 
BeveTidiie.  ii.  300. 
Hill  brokers  in  iMurland.  i.  350. 
Hill  of  exclianiie,  i,  42S. 
"Billon"  coins.  1.  273. 
HinTf.allism.  .m  <    fontenis.  chs.  20,  21. 
Birthrates.  ReniT.al  st.atcment.  ii.  210; 

fuiures  for  various  couutriis,  ii.  215; 

f..r  rr.it,  d  rratr...  ii,  21ii ;  i,.r  M/i.-.-a- 

chuselts.  ii.  219;    general  decline  in 

nineteenth    eiiitiiry,    ii,    223,    230; 

5(i;{ 


564 


INDEX 


m 


I       ; 


fXh 


variations   between   rich   and    poor 
quarters,  ii,  227  ;  between  native  born 
and  foreign  born,  ii,  228,  232. 
Bohm-Bawerk,  ii,  0,  11,  36,  257,  478. 
Bonanza  farininR,  i,  56. 
Bonanza  mines  of  Nevada,  u,  93. 
Bonar,  ii,  257.  -    ^     ( 

Bonds,  taxation  of,  ii,  537 ;    effect  of 

exemption,  ii,  543. 
Booth,  Charles,  ii,  241,  242. 
Boots  and  shoes,  exported  from  United 

States,  i,  543. 
Boston,  birthrates  in  different  quarters, 

ii,  228. 
Boulton,  ii,  165,  402. 
BowU^y,  ii,  210,  244. 
Branch  banking,  i,  399. 
Brassey,  ii,  402. 
Brentano,  L.,  i,  547. 
Breweries,  in  relation  to  taxation,  n 

r,b3. 
BripKs  collieries,  ii,  304. 
Brokers,  productive  or  unproductive, 

i,  26. 
Bueher,  i,  52,  110.  . 

Bureau  of  Corporations,  investigation 

of   railway    rates,    ii,   414;     powers 

should  be  increa-sed,  li,  43S. 
Business  leadership,  effect  on  industrial 

efficiency,  i,  105. 
Business  profits,  see  Contents,  chs.  49, 

50 ;  how  affected  by  rising  i)riccs,  i, 

303.  ,.   .  . 

Butcher's  trade,  in  relation  to  division 

of  nbor,  i,  42. 
"By-products,"    utilization     in    large 
establishments,  i,  54;    explained,  i, 
219. 


Cairnes,  ii,  134. 

California,  gold  discoveries  in,  i,  2oH, 
270,  442  ;  paper  money  fails  to  circu- 
hito  in,  i.  312;  effects  of  gold  i)ro- 
diiction  ou  foreign  exiluiiig'''*.  i.  t''*- 

Call     loans,     fluctuations   in    riitis,    i, 

■'•'■'•'■ 

( 'iloric  engine,  ii.  105. 

Ciiiiiida,  hanking  system,  i.  :!S:! ;  gov- 
ernment note  issues,  i,  3Jh  ;  trade 
with  rniteil  States,  i,  47,s,  'Ml 

( •apital,  .vt  Contents,  elis.  5,  3S~40,  40  ; 
moral  and  intellectual,  i,  108;  not 
cnated  hy  ImiiUs,  i,  357;  produc- 
tivity of.  ii.  7;  marginal  produi'tiv- 
ity  of.  ii,  9;  definition  of,  ii,  35 ; 
sometimes  cia.ssitieti  as  uiiiiiiiiii 
and  natural,  ii,  IIH;  how  accumu- 
lated  under  socialism,  ii,  457. 


Capital  goods,  i,  84 ;  how  influenced  in 

value  by  marginal  utility,  i,  151. 
"Capitalistic"  production,  h,  6. 
Carnegie,  i,  58. 

Carver,  ii,  11,  257.  . 

Cattle,  a  medium  of  exchange,  i,  114. 
Central  bank,  able  to  mitigate  crises, 
i,    413;     how    far    protects    specie 
holdings,  i,  4.j9. 
Central  reserve  cities,  i,  377.     _ 
Cheek,  legal  position  of  payee,  l,  387. 
Chevalier,  i,  307.  . 

Chicago  Board  of  Trade,  clearing  sys- 
tem, i,  430.  .. 
Children,  high  death  rate,  ii,  216. 
China,  silver  bullion  as  money  in,  i, 
231 ;  merchants'  notes  as  money,  i, 

429. 
Chinese,  exclusion  from  United  States, 

how  justified,  ii,  140. 
Civil   Service   Supply   Association,   ii, 

347. 
Clare,  G.,  i,  546. 
Clark,.!.  B.,i,  440,  ii,  10.  11,119,257. 

Clark,  J.  M..  i'.  478. 

Clark,  v.,  ii,  317,  359. 

(  Icariug  house  certificates,  i,  420. 

Clearing   houses,    i,    342;     connection 

with  theory  of  prices,  i,  430. 
CliKsed  -shop,  h,  209,  276. 
Coffee,  srr  Tea. 
Coinage  exijlained,  i,  230. 
Cold  storage,  effect  on  conditions  of 

-supply,  i,  145,  161. 
Collective  bargaining,  u,  -/o. 
Colson.  ii,  478. 

1  Combination,  horizontal  and  vertical, 
i,  59,  60. 
Commons,  ,1.  R-,  i.  42. 
Communistic  societies,  h,  44.3. 
Comparative  cost,  doctriiK"  of,  i,  482. 
Competition,  it.s  efficacy  important  for 

the  classification  of  capital,  n,  1-0. 
Competitive  margin  for  capital.^u,  20. 
Cimiptoir  d'Kscompte,  i,  402,  41.). 
Compulsoiy  arbitration,  ii,  310. 
Conant,  C.  A.,  i,  445. 
Constant  cost,  i,   172;    .-ffe.tof  taxes 

on  eomnioilities  utidi'r,  ii.  552. 
Constitutional    limitations,    on    labor 
|e^MsUltio!l,  ii,  292;   on  income  tax.^s. 

Consumer's  capital  (consumer's  wealth) 
not  commonly  recarded  as  eapitaU, 
S3  ;   how  it  yields  interest,  li,  33  3i . 

(■■,,ii.-iini;r'r;  r-.ifpliis.  1,  l'---       _ 

"  ( 'oiitinental "  paper  money,  i,  31J. 

Continuous  demand,  i,  140. 


INDEX 


565 


Convertible  government  paper,  i,  320. 

Cooke  (Jay)  and  Company,  i,  402,  410. 

Cooperation,  see  Contents,  ch.  59. 

Copper,  corner  of  188S,  i,  217;  suc- 
cessive discovery  of  mines,  ii,  95. 

Copyright  books,  illustrate  monopoly 
value  under  decreasing  cost,  i,  207, 
209;  a  qualified  monopoly,  i,  213; 
justification  of,  ii,  109. 

Corner,  operations  analyzed,  i,  214. 

Corporations,  str  Contents,  ch.  6; 
honesty  of  management,  i,  94  ;  con- 
nection with  crises,  i,  409  ;  get  also 
Bureau,  and    I'ublic  Service. 

Corporation  taxes,  Federal,  ii,  513; 
by  states,  ii,  530. 

Cost  of  production,  in  what  sense  used, 
i,  171,  180,  ii,  147. 

Cotton,  fiber  and  seed  illustrate  joint 
cost,  i,  218,  220;  why  exported 
from  United  States,  i,  4.S5. 

Cotton  goods,  .statistics  on  manu- 
facture, i,  50  ;  effect  of  United  Stales 
duties,  ii,  500. 

Cotton  market  and  prices,  i,  147,  151. 

Craft  gilds,  i,  39. 

Credit,  use  of.  effect  on  prices,  i,  427. 

t'rt'dit  Lyonnais,  i,  35. 

Cri.ses,  see  Contents,  chs.  29,30;  imlicy 
of  Hank  of  Kngland  during,  i,  309, 
414;  periodicity  of,  i,  400;  sun  .spot 
theory  of,  i,  401  ;  advantage  of  a 
central  bank  for  mitigating,  i,  413; 
possibly  mitigated  by  combinations, 
ii,  433. 

Crisis  of  1S57,  i,  413. 

Crisis  of  1X73,  i,  402,  408,  420,  424; 
connected  with  railway  buikling,  i. 
410;  connected  with  international 
borrowing,  i,  471. 

Crisis  of  1893.  i,  401,  407,  421. 

CrLsis  of  1907.  i,  401,  410,  420. 

Crompton,  i,  34. 

Crops,  connection  with  crises,  i,  400, 
407. 

"Crossing"  of  checks  in  England,  i,  344. 

Cuban  sugar  lands,  predatory  culti- 
vation of,  ii.  00. 

Custom,  effect  on  retail  prices,  i,  153. 

Cuttliroat  competition,  ii,  427,  429 
435. 

Darwin,  C,  ii,  131,  210. 

Darwin,  L.,  i,  445,  ii,  478. 

Death    rates,    general    statement,    ii, 

210;    figures  for  various  countries. 

ii,  216;    for   United  States,  ii,  2i9; 

for  Ma.'-saehusetts,  ii,  219. 


De  Beers  company,  i,  204. 

Delano,  F.  A.,  ii,  370. 

Demand  curve,  i,  141. 

Demand  loans  by  banks,  i,  353. 

Denmark,  cooperation  in,  ii,  354. 

Depew,  town  of,  ii,  90. 

Depositors,  relation  to  banks,  i,  387, 

389. 
Deposits,  see  Contents,  chs.  24-28,  31  ; 
relation  to  circulating  medium  and  to 
checks,  i,  340,  431. 
Depreciation  of  machinery  and  main- 
tenance of  capital,  i,  77. 
Derived  value,  ii,  117. 
Deut.sche  Bank,  i,  373. 
Dewey,  ii,  254. 
Dexterity,    how    far    cause,    how    far 

result  of  division  of  labor,  i,  32. 
Diamonds,   in   ri'lation   to   consumer's 
surplus,  i,  1,30;   illustrate  monopoly 
value,  i,  201,  20S. 
Dickinson,  G.  L.,  ii,  479. 
Dietzel.  H.,  i,  547. 
Differences  of  wages,  sec  Contents,  ch. 

47. 
Diminishing  returns,  relation  to  v  i'mc, 
i,   185 ;    in  agriculture,  i,  18'  v 

far   in   gold   mining,   i,   202 ;  o 

.•apital,  ii,   11;    on  any  one  p.      f)f 
land,  ii,  5\t,  62;   on    urban   sites,  ii 
80;   taxes  on  commodities  produced 
under,  ii,  554. 
Diminishing   utility,     principle    of,    i, 

122. 
Direct    taxes,    constitutional  sense  i,f, 
ii,  512;    relegatid  to  local  boilics  in 
Pru.ssia,  ii,  527;    economic  sense  of, 
ii,  550. 
Discharge,  right  of,  essential,  ii,  275; 

disappears  under  .socialism,  ii,  462. 
Discontinuous  deman<l,  i,  140. 
Discount  by  banks,  how  cabulated,  i, 

33S. 
Discounted  product  of  labor,  relation 

to  wages,  ii,  198. 
Diskonto-Gesellschaft,  i,  373. 
Division  of  labor,  .«(<  Contents,  ch.  3. 
Domestic  cxchatige,  i.  400. 
Domestic  servants,  mr  servants. 
Double  standard,  i.  200. 
Double  taxation,  ii.  .")37. 
Dri'sdiier  Hank,  i,  37.'i,  415. 
"  Dry  f.irming."  ii,  09. 
Dumont.  ii,  2,")7. 
"  Dumiiinc,"  i.  21 1. 
Dunbar.  C.  R.  i.  445. 
Dutch  Fast   India  fompany,  destruc- 
tion of  crop  by,  i,  204. 


m 


myasigf^ggBaag^^^j^aywiMKaB 


566 


INDEX 


Duties  on  imports,  fiscal  effects,  ii,  557, 

559:  see  a/so  Protection. 
Dwell  ngs,  rental  of.  a  form  of  intero.t. 

ii   T5     demand  pos.-'ibly  dtacontinu- 

oiis.  i,'  158 ;  inridcnoe  of  tax.-a  on.  ii, 

518.  535. 
Dynamic  state,  i,  1"5. 


Economic  area,  i.  40.  _ 
Economic  goods,  i,  3,  5. 
"Economic  rent,"  ii.  56. 
EdRcworth,  F.  Y.,  i,  445.  546. 
Ellison,  ii,  1«1.  40L'. 
Education,  effect  on  efficieno ,  i.  101  , 
expense  of,  doubly  affeets  wages,  u, 

127. 
Egypt,  usury  in.  ii,  30. 
Eheberg,  ii,  561. 
Eight-hour  day,  ii,  203. 
Einaudi,  L.,  ii.  06. 
Elastic  demand,  i.  Ml. 
Elasticity  of  bank  issues,  i,  300. 

Em;ri;c^y;urrcncy.  i.  300;    (act  of 
EmpSme'n't   not   created   by    protee- 

England,  rate  „f  interest  in  eighteenth 
eentury,  ii.  -'6;  «.c  also  Creat 
Britain. 

Kntrepreneur,  ii.  15S. 

•  i:,,,K.l  p.iy  for  e.,ualwork,      u,    144, 

EMuaUty  of  saerifice,  as  a  pri.ieiple  of 

fixation,  ii.  4S0. 
E.pMli.inL'   ">.t    of   product.on,    as    a 

principlcofprotert.on   1,516. 
E.,ualizinpdifT..r..n.esofwag.'s  .1      -   . 
Equation  of  supply  and  demand,  .,  14.1. 

Erdmann  .\ct.  ii,  3'Jl. 
Eriessnn,i,41,ii,165.     .. 
Erie  canal,  free  of  tolls,  u,  365. 

,inre    1S73.   i.   475;    "f   imports   till 

1S73.  i,  475.  ,    •    ,ri 

Exchang.',  how  developed   i,  16t. 
Exehaiip'  and  division  of  lat.or,  i,  .<x. 
Excise,  ii,  .551.  . 

Expeliclitnie     on     luxuries,     effret     on 

wages,  ii,  103. 
I.;xp.'ns,s  of  produetion.  in  what  sens> 

used,  i,  17-2.  ii,  147.     _ 
Ext.!isive  f  -.Itivation,  u,  W. 
H,;,rua!  .-.,.,.aes.  i.  1(.2. 


"Fair  price,"  i.  !•'''''• 

"Fair  wages,"  ii.  313. 

Faraday,  i.  100. 

•  •  Favorable  1  .alance  of  trade,    i.  476. 

Eaweett.  H..  i.  546. 

Fay,  ii,  360.  .        .. 

Federal  incorporation,  u,  4.Ji*. 

Fetter,  ii,  257. 

Fiat  money,  i,  310. 

Fiscal  monopoly,  i,  212. 

Fisher,  I.._i._44.5,  440,  11,  110.2.57. 

Fixed  pric's'(retail).  a.lvantages  of.  i. 

Florin,  peculiar  position  of  in  Austria,  i, 

Flour  milling,  how  affected  by  dealings 

in  futuns,  i,  102.  ,    „„ 

Foreign  exchanges,  «.  ■  Contents,  ch  3.. 

Forests,  varying  conditions  of  supply,  i, 

Fortunes,  easily  maintained  in  modern 

times,  i,  00. 
Frtincc,  cooperative  production  in.  u, 

France,  preventive  cheek  in.  n.  -18. 

FrMikcl.  ii,  300. 

FrccCloods,  i,  3.5,  ,r    07  . 

Free  Trade,  .-'  c  Contents,  ehs.  36.  .il , 
summary  statemc-nt  of  main  argu- 
ment, i.  503.  ,  , 

Freight  charges,  effects  on  imports  ana 

exports,  i.  473. 
Freight  classification    on  railways,   n. 

Frcncii  iiea.-antry,  hoarding  by,  i,  73. 
Friendly  societies,  ii,  328. 
Fulton,  i,  35.  . 

Fund.'.;  incomes,  to  be  taxed  at  higher 

rates,  ii,  400.  _ 

F;itures,  speculation  in,  1,  101,  107. 


Factorv-  acts,  ii,  286. 

"  Faculty"  principle  of  taxation,  11,  4^8 


(iary,  town  of,  ii,  SO. 
I  (ieneral  property  tax,  sec  Contents,  eh. 

i     m 

Ideographical   division   of   labor,  i,   43 
.pit  ;  how  alTected  l>y  railways,  11,  .■i04, 

Cerncn  w.irkn.en's  insur.-.n.'c  in  see 
(•„nte„t-.  ch.  58;  growth  of  larg; 
s,.;,le  production,  i,  51. 

Client  system  of  MneMii>loye.l  l)-n-ti., 

ii.  330'. 

(;l.,^.'ow  hank  faihire,  1,  00. 

Clins  blowers'  union,  i,  522  ;  in  relation 
,„  n,a,.;inal  utility,  ii,  HO  t  .ormer 
monopoly  position,  n,  267. 

(lodiii.ii.  304,  305. 


INDEX 


567 


Gold,  articles  made  of,  how  afTectcd 
by  ri.siiiK  and  falliii«  iiriics,  i,  2lL'. 

Gold  and  silver,  how  littid  for  niediuni 
of  exehanne,  i,  ll.j,  22N  ;  imhistrial 
consunii-tioii  of,  i,  244,  24");  how 
durahility  affefts  value,  i,  2.')2  ;  pro- 
duilion  ah'atory,  i,  2.'>'i.  yit  l's,>  ^.) 
in  modern  times,  251;  how  far  su\>- 
jeet  to  diminishini;  ri'turns,  i,  2o2  : 
niinina  countries  exjiort  specie,  i, 
4(il,  47:}. 

Goldsmiths,  the  first  London  hankers, 
i,  336. 

Gold  standard,  adopted  in  Knpland,  i, 
274;  in  Cerman.v,  i,  27!s ;  I'liited 
States  legislation  of  I'JOO,  i,  32S, 

Good  will,  elTect  on  value,  i,  177. 

Goshen,  G.  J.,  i,  540. 

Gould,  ii,  3!)0,  392. 

Government  employees,  high  pav  of,  ii. 
I2(),  41)h. 

"Government  stroke,"  ii,  4 'S. 

Graebe,  i,  100. 

Great  liiitain.  and  sreoarai  al  divi- 
sion of  labor,  i,  43,  44 ;  system  of 
custom.s  duties,  i,  520;  contempo- 
rary tariff  controvcr.sy  in,  i,  5311 ; 
investments  in  foreign  countries,  i. 
470;  international  tiade  illustrated, 
i,  495 ;  distribution  of  incomes,  ii, 
240  ;  of  propert.v,  ii,  243  ;  causes  of 
success  in  coftperation,  ii,  3.J0,  357: 
income  tax  systeiri,  ii,  5111,  511,  514: 
inheritance  taxis,  ii,  510;  local  ta.\es, 
how  levied,  ii,  522,  542. 

"Cireenbacks,"  i,  .327, 

Gresham's  law,  i,  269. 

Ground  rents  and  lea.ses,  ii,  86,  87. 

Hadley,  A.  T.,  ii,  478. 

HambiirK,     ' ''•th     rates    in     different 

quarters,  li,  ''27, 
Hammond,  M.  >,    ii,  478. 
Hargreaves,  i,  34. 
Hedging,  i,  1()2, 
Helfferich,  i,  2.5.3,  445. 
Heredity,  i.  109. 
Hill,  H.,  ii,  400. 
Hindustan,  usury  in,  ii,  .30, 
Hoarding,  i.  73. 
Holding  oompan.v,  ii,  421,  439. 
Holland,  rate  of  interest  in  eighteenth 

century,  ii,  20. 
Hollander,  ii,  3,59. 
Homo  market  argimicnt  for  protection. 

i,  510. 
Horizontal  combination,  i,  59,  191. 
Hours  of  labor,  ngulation  of,  ii,  291; 


influence  of  shorter  hours  on  wages, 

■;i,  294. 
Hurd,  ii,  2.57. 
llutchins,  ii,  2.59. 
Hutchinson,  W.,  ii,  143. 

"Illegitimate"  i.rofits,  ii,  1S7,  493. 

"Ilhgitiinate"  siieculation,  i,  100. 

Immigrants,  how  remittances  atTeet 
imports  and  exp'orts.  i,  472 ;  low- 
rates  of  wages,  i,  491,  ii,   139,  234. 

ImiMobility  (jf  labor,  how  affects  iuter- 
nationid  trade,  i,  490;  influence  (u 
b.irgaining  power  of  laborers,  ii,  2'   ;. 

Incomeof  aeonmiunity,  how  measund. 
i,  133. 

Ineonjc  taxes,  see  Contents,  ch.  07, 

Inconvertible  paper  money,  are  Con- 
tents, eh.  23;  foreign  exchange 
under,  i.  404. 

"Inconvertible  specie"  in  British  In- 
dia and  in  Austria,  i,  323. 

Increasing  returns,  i.  1S9;  on  railways, 
ii,  307  ;  elTect  of  taxes  on  conimoditiea 
produced  under,  ii,  5.51. 

Increment  taxes,  ii,  102;  in  Germany 
and  (;reat  liritain,  ii,  103;  modes 
of  levying,  ii,  104. 

Indestructible  powers  of  the  soil,  ii,  05, 
OS. 

Imlix  numbers,  explained,  i,  291  , 
arithmetic  mean,  i,  291;  geometric 
mean,  i,  292;  median,  i.  292; 
Weighted  mi'an,  i,  293 ;  proposed 
regulation  of  money  by,  i,  4  12. 

India.  English  rule  in,  i,  25;  hoarding 
in,  i,  73;  drain  of  specie  to,  i,  245; 
silver  coinage  .stopped  in  1^93,  i, 
2S4 ;  value  of  rupee,  i,  323  ;  foreign 
exchanges  under  rupee  standard,  i, 
402. 

Indirect  taxes,  ii,  550. 

Industrial  Kevouition,  i.  35,  ii,  31. 

Industricstaat,  ergumeiit  against  in 
German.v,  i,  5.14. 

Inil;istic  demand,  i.  141. 

Incipiality,  .see  Contents,  ch.  54. 

Iiilii'ritMnce.  impoitance  for  distribu- 
tion, ii.  247;  ju~tilication  of,  ii,  24S, 
509. 

InhiTitance  taxes,  ii,  ,507. 

In>tinct  of  ac(iuisition,  i.  122, 

liKtimt  of  contrivance,  i,  72. 

Insiirance,  workmen's,  ace  Contents, 
eh.  5S. 

Irisurance  of  deposit.-',  i,  3>>9, 
Intangible"  propiTty,  under  general 
property  tax,  ii,  533,  542. 


w 


m 

m 

m 

11 

1 

m 


568 


INDEX 


IntcRration  of  Industry,  i,  60. 

Intciwivp  cultivutioii,  ii,  07. 

l"tentio..  of  th.-  owner  and  making  of 
capital,  i,  ^0. 

Int.r...st,  general  statement,  s.e  C  m- 
t..„tH,  .■1.8.38-40;  ,.r..lnn.nary>.tate- 
Lenteoneernin«.i,70:;.owa(TeeU^d 
l,y  ,hanKin«  prices,  i,  .Wo ,  not 
a^,rt.Ml  t.y  qnantity  of  mone.v ,  i. 
:i5--  how  aff.-.te<l  t.y  bank  ret^erves 
i    'm-    how  related  to  <iuantity  of 

,;„„„.y,  ii.  o:  p"-^«»''>-  ":•«''*"''■;''• 

17-  -teadines,.*  of  rate  ,n  n-.odern 
time.,  ii.  ^u:  why  pn.h.hlted  -n 
.nedieval  ti.ne.,  ii,  M  ;  on  durable 
•roods  r'ueh  as  dw<llnujs.  n,  .« ;  \"- 
riations  betwe.^n  ditT.'r..nt  r.»?>ons. 
ii  US;  ju.stitieatieM  of.  ".  11;  l«oW 
rate  determines  hcllinn  pnee  of  lan'l 
and  se,.urities.  ii,  !>7  ;  how  related  to 
business  profits,  ii,  17'.>,  Is^^;  '"'." 
far  rate  is  alTect.'d  by  taxation,  u. 

Internal  eeonomies,  1,  l!l,i.         ,.    ^ 
Internal  tax.  on  romni.dites,  n,  ..,>i. 
I„ter..ationa\     bimet.dlism,     probabl. 

effects,  i,  'JnO. 
Interiiatiomd     borrowing,     •■•l'.''-'''    "" 

imports  ami  exports,  i,  Jf.s.  n,  .18. 
Internati.mal   Harvester   C.mipany, 

International  Paper  Conipi^lX.  •;  '•- 

International  paper  money,  i,  .J.t>, 

International  trade,  «.r      ontents,  m. 

IV      eonn.'cti..       with     th.ory     <.r 

prices,  i,  4;W;    ■•xtent  of  Kan.  fr.;in, 

i.  .MU  ;  bow  related  to  nun-e<mipetin« 

uroups.  ii.  !•'>•'■  .  . 

Invention  promoted  by  corporations,  1, 

Investment,  inflation  to  savii.K,  I.  '  • 
In.ii,  bow  far  svippiv  elastic,  i.  b.tt 
Iron  ami  ste.l   n.umfaeture.   slatislics 

on.  i.  W);   tran-tonnatioii  sii 18W 

i,  .'.S  .   annual  outiiul  since  ISIKI,  i,  li'.l 

,'l;,h(.rate  plant,  i.  71.         .„     .     .    , 

Italv,   internati..Mal    trade    illuHtrat.^l 


Joint  cost,  theory  of.  i.  218;   appHca- 

tion  to  railways,  ii,  309. 
.loint  demand,  i,  22J. 
Juglar.  r.,i,  410. 


Kartell,  ii,  1-3. 
K.autsky,  ii.  478. 
Kinuslev,  Mary,  i.  230. 
Knickerbocker  Trust  Company,  ». 

Krupp.  i.  •">i^- 
Kuczynski.  ii,  Si-. 


402 


,lap«n,  international  trade  illustrated, 

i,  487. 
.leaks,  ii.  478. 

.Irvons.  i.  401.44.Vii.  in,  111... 
J,.ws,  wliv  ni.iney-len.lers  in  nudieval 

.Inbnson.  A.  !^  .  «>.  !"*• 
.Ic.lmson.  K  H  ,  ii.  '7H, 
Julmson,  J.  I'.,  i,  'l'>- 


Labor,  what  is  meant  uy.  i,  »\    Pr'^" 
.luctive    and    unpn>ductive,    i,     u . 
i.redatory,  i,  20. 
Labor  Iciiislation.  sir  f'olitents,  eli.  jl. . 

how  far  socialisti<-,  ii   4,">.j. 
Labor  supply,  a  .•ause  <  f  external  eco- 
nomies, i,  lit3  ;  inbuildinKoperationB, 
illustrates  joint  demand,  i,  222. 
Labor  theory  of  value,  ii.  148. 
Laborers,   unskilled,    why   waKoa   low. 
ii.  i:i8;  would  be  high  if  warce,  u,  171. 

Landry,  ii,  257. 

Lan.l  taxes,  sc,  rontents.  ch.  08. 

Land  tenure,  »cc  Contents,  ch.  4-. 
Large  scale  production.  >«■  t  ontents. 
rU.  4  ;  connection  with  combmation. 
ii.  430. 
Latin  rnioii,  i   278. 
Laughlin.  .1.1.  i.  445. 
Law.  in  relation  to  productive  labor. 

i.  28. 
Law's  notes,  i.  313.  . 

I  iwyers.  productive  lalMirers,  l,  .J. 
Lclaire,  ii.  304.  3(K5.  ;!ii7. 
•■  Legitimate"  biisincs.-.  i.  29. 
•Legitimate"  protits,  II,  187. 
Le  Uossignol.  ii.  478. 
L.roy  Heaulieu.  1'.,  ".  •>^<\. 
Levasseiir,  ii.  2,''.7. 

Lewis  an.l  Clark's  expedition,  i,  l.H. 
Lieberi  lann,  i,  loi'i.^ 
Liefmai.n,  ii,  434.  378. 
Leisur.'  .lass,  how  it  emerge*,  U.  -oJ. 

justitira'ion  of.  ii.  2,''>3. 
LiTuilali.n.if  .aitpul,  ii,  '272, 
I.imite.l  liability,  i.  s''-  , 

Limited  cinage  in   1878  ami   1890.  1. 

■  II,  >    2sA. 
Limpii.V'  standard,  in   Fran.-e.   i.  280; 


in  t  lermany 

i.  2M. 
List.  1',  i,.V2 
Living  wag.' 

ill  I.  i.iti''.!". 
Lock.',  ii,  2,M 
1  Lou.lon,   biithrat 


JSO;  iiiliniti'dHtttlcB, 


'■28. 

1  haiiv  notion,  Ii. 

.,.i.=R.  ii.   IW. 


•200: 


:l^i:i' 


different  ipiar- 


INDEX 


569 


ters,    ii,    227,    229;    distriljution    of 

incomes,  ii,  241,  242. 
Long  and  short  haul,  ii,  37 1. 
Lowell,  ii,  410. 

Maphinery,  and  idrnticul  nioM'mi'nts. 
i,  .30;  conu<'('tion  with  tiuilT  prob- 
k'ms  in  United  States,  i,  .513. 

Maekay.  ii,  470. 

Maerorfty,  ii.  47S. 

"  Making  work,"  effect  on  wages,  ii. 
194 ;  no  indueeni'nt  to,  under  .*u- 
eiali.Hni,  ii,  402. 

Malloek,  ii,  241. 

iMaltluH,  ii,  20'.),  212,  213,  224,  231. 

Mantoiix,  i,  110. 

MarKiiial  i)rodvieer.s,  i.  172. 

Marginal  utility,  i,  12.5;  of  money,  i, 
127,  23>S;  ultimate  determinant  of 
value,  ii,  l.")l. 

Margin  of  eultivation  defnu'd,  ii,  59. 

Marriage,  slinht  v.iriation  of  rates,  ii, 
224  ;  aveniKc  age  of,  ii,  '.'20. 

Marshall,  i,   1IS2,   191,  ii,  90.   173, 
207. 

Marx,  ii,  50,  337,  44,5,  4.50,  473, 
478. 

Miiiwaehuaetta,  Mrthratis  of  foreign 
born  and  native.s,  ii,  JSJ  ;  Tin  llimr 
Art,  ii,  2s7 ;  mill  rondition.s  in 
earlier  timej*.  ii,  2^^ ;  raihvay  roni- 
miaHlon,  ii,  411;  method.^  of  taxa- 
tion, ii,  5.33,  .5:tO. 

Maximum  hapiiinei«n,  i,  135, 

Mayr,  ii,  224,  257. 

Meade,  ii,  47S, 

Medium  of  ex<  hange,  i.  1 1  I.  227. 

Merrantilism.  i.   170,  .509,  53s. 

Mergenthaler,  ii,  los.  109. 

.Metals,  relative  produi'tion  of  dilTi  rent. 
i,  229. 

Met.yer  tenure,  ii,  72. 

Mexiean  silver  supply,  i.  2.50. 

Meyer.  H..  ii,  211,  240. 

Miehigan,  liirtlirates  of  native  burn 
anil  fiireign  born,  il,  22S. 

Milk,    wasteful    ennlpetilioll    in    suppl>  , 

i,  0.5;    "postage  stamp  rale"  no,  ji. 

Oil. 
Mill,  .F.  ,''..  i,  110,  LMO,  510.  il,  1(12,  lis, 

2.37.  2.50.  290.  :)'!'• 
Mines,  subject   to  diMiiiii.-liiiig  return-, 

i,  1S7:  rent  of,  ii.  9J 
Mininuim  for  etiieiiney.  i.  pio, 
Miniiunin  wagi's,  li.  L'99 ,   in  nlatioii  I 

taxation,  ii.  I0!t. 
Mint  price  ot  g.il.l,  1,  .'.t.l. 
Mitchell,  W.C,  1,295,319,415. 


170, 
471. 


Mombort,  ii,  228. 

Money,  fhiozza,  ii,  241,  244. 

Money,  set'  Content.s,  Bk.  Ill ;  what  is 
meant  by  the  term,  i.  3tS0,  387,  444  ; 
under  socialism,  ii,  449. 

Money  incomes,  wherein  high  range 
advantageous,  i,  49,s,  ,501.  ii,  1.50. 

Monopoly,  iff  Contents,  chs.  15,  45, 
63 ;  how  connected  with  internal 
economies,  i,  194  ;  profit  defined,  i, 
l02  ;  inilustrial,  ii.  107;  gains 
sometimes  defined  as  a  kind  of  ••ent, 
ii,  110;  of  labor,  ii.  12.H,  20t) ;  the 
essential  eharacterislie  of  public 
service  industries,  ii.  39,s,  407;  what 
are  earmarks  of,  ii,  410;  effect  of 
tax  on  monopolized  <onimodities, 
ii,  554  ;   fiscal,  ii.  5.59. 

Morgan,  i,  95.  .332,  ii.  392. 

Mortga'ies.  taxation  of,  ii,  540. 

.Mo.ses,  i,  312. 

Motive's  of  business  men.  ii,  '20. 

Multiple  standard  discussed,  i,  301, 
41.3. 

.>lunro,  ii,  410. 

Napoh'i'U.  i.  24. 

National    banking    py.stem    in     I'nited 

States,  i.  :i75. 
N.  Isoii,  \.  O.,  ii,  304,  ,305. 
New  York  blinks,  position  in  .\merican 

banking  system,  i.  379,   IIS. 
New  ^drk  Central  Haihva.v,  ii.  3S3. 
New  York  city,  value  of  Innd  in,  ii,  79; 
New  York  state,  luethoils  of  taxation, 

ii,  .533,  ,5,10, 
Newsholiiie.  ii,  '.'U,  JIO,  224,  229. 
Non-conipetini.    groups,    ih>ciibed,    ii, 

1.31;      eonni'ctiun     with     theory     of 

internationil  liadc,  ii,  155 
Noii-niatcrial  wealth,  i,  19,  20. 
Northr.ip,  ii.  His,  1ii:i, 
Note  l.roki  i>  ill  I  iiited  Stat.'s,  i,  3.50. 

illPice  buildings  in  .\nicriean  cities,  ii. 

7s.  S3. 
•5gle.  ii,  '."JO. 

Ohio  I.ifi'  ami   I'rii^t  < 'ompaii\ .  i.  102 
oil,  illustriitc^  jdiiit  eo-i.  i,  .".'0. 
( >ld  age  p.'n>iiiii-    ii.  331,  .3  1.3. 
I  >peii  iliop.  ii,  :'70 
I  ipen  union,  ii,  207, 
( ir.gnii   i|iii-^li.iii,   ill   reference   to   free 

trade,  i,  5110 
(Vhr,  ii.  tOI, 
"Outride    paper."    when    bought     by 

bankn.  i,   i.5.5 
I  Kerberg.  il,  257, 


570 


INDEX 


Ovorcapitivlization  of  railways,  ii.  3So. 
Ovcn'n.l    tiurney    and     Company,    l. 

Ovoriuvpstmpnt,  sec  Contents,  oh.  41. 

Ov(-)pr!'.du"tion,  s>c  Contonts.  < ;h.  41; 
,,;.rtily  romo.li.'d  und^T  sociali>m,  n. 

Ovrrvalviod  r.i.tal.  undor  double  .land 

ard.  i.  2r)7. 
Owon,  U..  ii.  l'"'- 


Pain  economy,  i.  l'*'-  ^   .   , 

Panama  ■•anal,   illustr.atos  nncorta.nt 

r.flibor'B  proiUict,  ii.  200. 
..p,,    ,siti,"induntii>s.  i.  4S(i,  n,  1   IV 

Pari'to.  ii,  24»1. 

P:,m,  hirthrat.s  in  .liff.Tcnt  quart.Ts. 

ii.  ■■;->7.  _     _ 

Piirtn.Tsblp.  l«'.jal(iositionof.  1.  N7. 

l..,t,nt.,  arti.l.'H  ilhi.trat..  monopoly 
,,nr(s,  i,  2W:  jiistitiralion  of.  vi, 
lOS  ;   term  of.  ii,  lOH. 

l':itl.ii.  i,  bil. 

Pal  i>.'n.  ii,  ■-'.">  1. 

I'iiwnliiokrrs  loans,  ii,:tO,  40. 

P,.nn-\lvania,  lio'.v  ^rruntir-  laxi-il,  n, 
,5:11. 

P,  rkiii.  i,  100. 

■•I'hilanthroi.y  at4i).rront,    u,  10. 

piiiiippo  icii.  n'»- 

Pi,.,.,-worK.  ii.  -"-'• 
Pin.iu.  A.  ('  ,  i.  •'i'^-,. 
Pi..n"tT  cultivation,  ii.  01. 

l'l,.:ivur ■ononiv.  i.  l-H. 

P,,l,l,-,  1..,  i.  047. 
P,m.|m  iimoim  riiihv:iy<.  n.  .(..•. 
Pnor  I.awH.  li.  :U-'  .., 

Population.   ..M    (■ot.t.M.ts,   rhs.   o.,   ..  Y 
inoNriumt  of,  vvill.inauroup.  n,  1..-. 

l>,„ili\rrllr.  !    -,  U,   Jl:!- 

•   r„sfo;.'-tMiop  raO\"  on  nolway^,  fm 

uu\k.  ii,  t'O. 
|.,  .,,,1      ,,,(,.,      uniform      l>.r,oi-.'      oi 

„,..n..i."l\.    '■    -■'"•     "''•'""    '"    '^ 
|,.  1I-'  -.  u,    loO 
p,,|..ntiU  ...uii"  tOiou.  ii,   1  1! 

p., I,, -I,  1,  ?.">i' 

).|,.,|  ,1..,S    ,.i|\liv;itiol\.  i,   'i  t  I     \l    '■''' 

I',    ,l.,t..rv  I  d".r.  i.  JO 

•    IV  no ni.n.N"    lo    l'"it   ,n,.l 

p  ii;,  i,  I  '1 

f,     ,1K'.    \.'.!o.-.  i,   1  10. 
ii,.\,  iili\.    •  !'■  •  '--    'i.  -:  • 

Pn I.liii.  d    i.  117. 

Pn...  m   I   .00   1    -',.    ..    P.'M    Pior,,   , 
J|)"i;    IM'O  "^o.  I.  .ll'.t. 


Printers,  how  affected  by  inventions, 

ii.  V.M.  . 

■■  Private  bank.V  in  Germany,  i,  -i'  1. 

Privat.M>iop>ity.  •-<'  l'r"l)erty.  _ 

Pri...s  eff.'ct  on  nnuineration,  ii,  i-<. 

1  Produrci'.s  capital,  i.  "0. 
'  Producer's  .--un.Uis.i.  ISO,  n,  50. 
l'n„luctivc  and  vuuuo.luetive  labor,  1, 

'•''•  ■     1    ••   - 

Productivity  of  capital,  u,  (. 

Profess,.rs'  .salaries,  why  low.  li,  P..>. 

l.,.„t,t,-.harim£..-.  <•">'".■'";••■''■.;'';.    „ 
l'rof:n-sive  tax.iHou.   u.  4b<,  4',)-.    ».« 

t,,  iiduiitances.  ii.  'jOH.  ,,      ,      , 

,.,.„,,,,,v,    grounds    of,    ,^.c    ContenlB. 

(hs.  .")1.  'it.  <i.">:   inland,  ii,  i  3,  <_o. 
Pi,,lection.  .s"  Conl-'nts,  eha.  :iO,  3(. 
I'rusMi.    distribution    of    incomes,    n, 
".,..,,,.    ,,,■   ,„-,.i.erty.  ii.   1:43;    railways 
yive'  low  export   rates,  ii.  ;(:.'> ;    I'"r- 
d,„se  of   raihvays.   ii.   405;    ineomo 
I       tax  >.\  -ti  in,  ii.  .■>0.'i.  .511. 
I  Psvchi'  inciinie,  i,  13.").  _  . 

i  I'-vcholo-v,  relation  to  bu.-mevs  ainbl- 
1      tion.  ii.  Hw  ;   to  problem!,  of  .socml- 

i-ni   li.  If'o.  '""■ 
1  Pubbc    d-bts,    how    afTectcd    by    price 
'";;;;„„„„  i,,„v;   ,„,    „(...  war  debts. 

Public  coods.  i.  .">. 

Pubbcity.  for  cntrol  of  corporations, 

li.  Ilo.  I^s. 
'  p„l,!i,.owi,.r>bii..sM- Contents,  eh.  I.-. 

l„,^^   far  .-ocinlistic.  ii.  4.54;    how   re- 

I  ,,,.,1  totaxition.  ii.  4X1. 
l'„l>'o.'  >  ■eurities,  taxation  of.  il.  oii- 
•p.il.lic   s.rviee"    industries   and   cor- 

,„„,,,i,,„..  i.so,  ii,  110,307. 
PuUuen.  to«n  of,  li,  SO. 


liiuauiOv  ili.-rv  nf  mom'y.  i,  237.  427. 

I  i;.,,.,.  ,ui,i,l.    ii,  -'30. 
j  l!:i.'.  u.  :lVi 
i;.,ilT,  i-e„,  il,  3.-.I. 

,;, ,,,,,,,,,   ..,,    Contents,   cb..   r,0.   •;!_. 
,|,lli,  ult\   nf  .^upervi-mii  labor,  i,  .'< 
,,,„..tiueUnu    eonnecled    «.lb    c-ri.s. -, 

1,  pi  1    HIT 
|,        I,,,  ,,(,,,.  „l..te.u,  ;,.  to  money,!, 

1        ■■,,     .,-t... U.  i. -1"  ,     ., 

i  I,,,,,,  ,,„„,...,  .  b.lwe.H  eobl  and  mI- 
j       ,,,,     ,    ..,.,,:    ,n  I  mod  >latev  i,  JO--; 

,.,  I  I  tnr,'   1    J7.'>  . 

I  p,.t,..  ,,,  ol  .  II  I.eiwe.uKold  and  Silver. 
i  "  ,  1,  o....  .11.  r  l^Tl  I.  -■<  •  .  I'.'o-' 
I  I,  ,  1^,,  j  i  ,  .  ,  ,  steadiness  of. 
i       ppmct.   i     b\      bimetallism,    i.     ^77, 


INDEX 


571 


280 ;  how  probaWy  affcTtod  Ijy  inter- 
national binii'tallism,  i,  2S7. 
Haw   matorials,   give   no  oiiasioii   for 
protection    to    yoiniR    indu^tric.--,    i. 
olM,  r,to. 
Hral  cstitti'  atjcnts,  ii,  s:i,  >>7. 
Ui'hat(-s,  ii,  :j7',l,  420. 
Hi'ciprocal  ilcni.iiiil,  theory  of,  i,   lll.'i. 
Ueeiproeity,      ilievitalile      a.-.      n  ;itU(ls 
sIlippiliK,  i,  oMl  ;  with  Caiiaila,  i,   i'^. 
od'.t;     how    far   e^xpeilienl    for   OrvM 
ISritaiii,  i.  .",.i7. 
nenre,'.>ive  taxation,  ii,  o,")>,. 
Heieh^*llani^,  (le.-eription  of,  i.  .■i70. 

'(eieli.skas.sen:*eliciMe,"  i,  :i.'s. 
Hei.t,    ,s(C    Conteiit^,    eh,--,     l:),     It,     l(i ; 
'leory    of,     how    far    aiiijheaUe    to 
juiciness  proht,-..  ii,  172. 
1,  pre.sentative  lirni,  ii,  17t>. 
He-servi'  I  'tics,  i,  377. 
Hesuniptio.i    of    speeie    paymiiit.s,    in 
rniteii  .-^tatr,-  111   Ks7!t.  i,  :i|N;    what 
method  desiraliie,  i,  ;S1_'. 
Retail  priees,  liow  affei'ted  In   iiiaririiial 
utility,  i.  I,"i;!;    how  related  tc.  hIjoI,- 
balu  price.-*,   i,    1.-,:!;    |„,w  afl'eetid  hy 
rnsfoni,  i,  l,').!;    .'nh  aritaiies  of  li.ved, 
i,  15'). 
Retail  tr.-olini;  on  I.ol'i'  t-eale,  i,  r,T. 
Ullodei,  ('.,  i,  21)  t 
Uieardo,  ii,  d.'i,  liii,  1  Is.  i,",:;. 
Ri.tinii;    prie.s,     how     eonneeled     uiih 
prosperity,  i,  ;i(t:i  ;  elVeet  on  «.'o;i>,  i, 
i.  MH  :  elTeet  on  l)u.-.uii-.-.i  pmlit.,,  :iii,!, 
I{oelidale  Pioneers,  ii,  ,i  Is. 
HodlierlMS.     evp;:(|ialinli     ,,t     iri^e-     |,\. 

ii.  ^'.I ;   on  nni'niplo,\  luent,  ii.  :i:!7. 
H(/s(hi'r,  i    I  ID. 
Uothsihild,  i,  ',1."),  .(.12,  ii.  II. 
Honnd.tlionI  prodnetion.  ii.  11.  I  I. 
Rowntree.  i.  os, 
Hiiyallies  on  mines,  n.  '.HI. 
"  Runs"  on  lianks.  i.  l|:i.  1 1(1. 
Rilp''<'  i'l  India,  i,  ;t2.'t. 

Saver's  rem,  ii.2.'l;  in  rilatinn  (o  taxa- 
tion, ii,   \'.K,. 

SaviiiK,  Ktimiilaled  l>.\  ■  ,,r|i.irali..|i-.  j, 
!•():  how  far  ihpemj.  nl  on  a  r.  uaid, 
li.  Iti ;   nnirtfinal.  ii.  21. 

Savuiff  and  e,i|,il,il.  i.  72. 

Sax  inu^  li.'Uiks,  i,  7(1. 

Se.ali.  ii.  27',l, 

Seha  (He,  ii,    17!t 


rhlnnller. 


.'111.  2ol.  2,- 


if;. 


HeinMirs.  «iniile  nf.  In  illnsd.iie  (1 
of  \  ahie,  i,  |s2.  I'.ll. 


.Seoteh  banking  systom,  i,  ,382. 

Si'ai^er,  ii,  '.io'.K 

Seasonal     price,     relation    to     market 

price,  i,  14',). 
Securities  not  capital,  i,  S3. 
SeimiioraKc,  i.  232,  272. 
Sejiiiinan,  ii,  .'idl. 
Siiiior.  i,  31:!. 
Servants,  hi^li  wmkcs  in  InitcHl  States, 

i,  olid,   ii,    12.j,   2<1J;    per  family  in 

London,  ii,  211. 
Share  f.-irmina,  ii,  72. 
ShiTm.an  .\it.  ii,  3s(l,  422,  437. 
Shipliuil.linii  in  the  rnited  States  and 

(Ire.al  Uritain  contrasted,  i.  lyj. 
Shipi.inii,  eOi  ct>  of  chartres,  on  imports 

and  exports,  i,  473  ;    political   argu- 

nicnts  for  sniisidies,  i.  .')3(l. 
Shirtwaist  workers,  ii.  1  13. 
Sickni  .ss,  in-^nrance  a«aiii.--t,  ii,  328. 
Sieini'iis,  ii,  nil.  1(12. 
Silk   duties  in    liiited   States,   ijossihle 

(■nVctsof.  i,  o2;i.  "i4  1. 
SiUir.  drain  to  tin'  I'.at-t,  i,  2t.>;    po-i- 

ti  m    in    -.ixtccMth    eentii!-       i,    2.'i."i ; 

l.rodiietion  after  disco\.  f  .A r- 

ica,  i,  2.')(>:    produelion  .  i'Mo,  i, 

2s."). 
Sihc-r  cerdlicatc.v,  i.  _'s3. 
SiUer  dollar,  i,  2(l.i,  2(18;    fre(^  coinaKO 

droppe(l  ill  |s73.  i,  osi. 
Simile    ta\,    ii.    7.3;     with    refirenie    to 

urban  laml,  ii,  (Is  ;    with  reference  to 

iiiliic-.  ii,  im. 
Situation  lent,  ii,  (10. 
Skati-.  .\mi  riean  imitated  in  (icrniaiiy, 

i,  obi 
>\:\)l,  i;..i     ."te^.  joint  e,  ^,,  i,  220. 
Slat  in.       -    I. 
>lidiiiK  ■-'.'!.■    li.  .31  1. 
Smilh,    .\dam,    i,    ,1.    I  10,   218.   o.   4  1, 

130,  ISO, 

^oi'i;ih-.ni,        ..      (    olil.  lit,-,     ein,     (II,     (!,",; 

attiliel        low  Oil      (  la-.-ihi  ation     of 

(.ipital,  II.  1  P.t 
Social  -tritilii  atioh,  n.  130, 
S(M'tb(er,  i.  ::,\.  2..0, 
Soldi'  t-     and     ,-ai!or-,     piodiielive    la- 

lioi,  r-,  i,  21 
-oiiiliai  i  ,  II,  2  In 

-,,u!l,   \f,p  an  I'old  -nj.jJv  ,  i,  2id.  il,  'l|, 
Spihr.  n,  2  lo 
^I'lii'o,  II.   i;s 

"■i'cir    pt'  IlllMlll,    I'ellelal    diell>-ion.    i. 

3|il ,    ill    I  iiio  d   ,--t,it<  .  duiiiiu  I   n  il 


■  MIC  '    1  ion 


<■  li,iiii!i  ,  1.   Pi  I, 


il  ah 


Cuiii,  nt,-,  ('h.  U  ,    in 


572 


INDEX 


f?' 


I  ■ 


Nt 


(■ 


relation  to  "  corners,"  i,  215;  in  real 
estate,  ii,  H7 ;  iu  railway  securities, 
ii,  3S9.  . 

Spendthrift  loans  do  not  lend  to  capital, 
i,  81 ;  effects  on  rate  of  interest,  ii,  2'.). 

Sprague,  O.  M.  W.,  i,  445.  440. 

Stadwirthschaft,  i,  3',t. 

Stahlwcrkvcrbatul,  i,  t)3. 

StandardizinK,  i.  l'''l- 

Standard  of  liviui;,  how  it  affects  waKcs. 

ii,  22\,  2'2!». 
Standard  Oil  Company,  i,  221,  u,  :i.S, 

386,414,421,421,427. 
Standard  rate,  of  union  wages,  ii,  273 ; 

as  to  prices,  ii,  435. 
Stanwood,  E.,  i,  547. 
State  banks  in  United  States,  i,  378, 

435. 
Static  state,  i,  175. 
Statistics  of  capital  often  misleading, 

i,  85.  . 

Sti'cl  Torimration  (I'.  S.),  and  vertical 
comliination.  i,  Ol  ;    how  affected  by 
ri.^ing  prices,  i.  304  ;   ii,  434. 
Stephenson,  i.  35.  10,  ii.  104,  402. 
Sterling  ixchangc,  i,  451. 
Stcuart.  i,  313. 
Stock  Ex(  hiinge  operations,  i,   20,  '.1.1 ; 

evils  of.  i,  ll')7  ;   clearing*,  i,  430. 
Stoppage  at  the  .source,  ii.  .V)3. 
Street  railways,  uniform  fare  tlie  result 

of  raono|)oly,  i,  210. 
Strikes,  violence  in.  ii,  280. 
Subsidiary  coin.  i.  271. 
Su!)sistcnce  and  lalior  i-ffi'iency,  i,  it8. 
Subsoil  draining,  ii.  <>!•• 
Suffolk  Hank  s.sstcm,  i.  317. 
Sugar  refinin,"-;,  i.  5'.>,  (12;    bounties  of 
Ih'.tO  in  I'nited  .><l:iiis.  i.  53J  ;   Kefin- 
ing    To.,  ii.    421.    424,     taxation    in 
(Irrnianv.  ii.  ■"'•'•i' :  taxation  iu  United 
Slates,  li.  .'■).'i^.  500. 
SuniniMin  Monnm.  ii.  45'.». 
Supply  I'urve.  i.  1 15. 
Surnanies.  illustruting  sinipler  divisinii 

of  labor,  i,  31. 
Surplus.    essi'iili:il    fiir    inuKiiiK    ri\pilMl, 
1,71  ;  its  !>i-iMiiiiiila'ioii  iiksonie,  ii.  Hi 
"Sweating."  ii.  2'.l7. 
"Sweating"  of  loins.  i.  _'.U. 


"Tariff  iiiotlh  r  of  trusts,"  i,  522. 

Taus-ig,  r.  W   .  i.  547. 

Tii«  diidiiiiii.'.  ii.  533. 

Tea  and  coffi'e.  Hrilish  taxes  on,  1,  .'CO  ; 
how  posiibb  (  lii'iipiT  in  Unileil 
State-i  bei-au-"'  of  prnliition.  i,  525, 
liixulio.i  of,  ii,  55H,  .5t)0. 


Technical  education  and  efficiency  of 

industry,  i,  103. 
Telephone,    rates   illustrate    monopoly 
value,  i,  210;    should  be  monopoly, 
ii,  400. 
Tenancy  in  United  States,  ii,  71. 
Textile  inventions,  i,  30. 
Thalers  in  Uerniany,  i,  280. 
Three-coriicred  trade,  i,  4>")G. 
"Tie-up,"  ii,  281,  320. 
Till  mines  of  Cornwall,  ii.  yS. 
ToliMcco,  a  medium  of  exchange,  i,  114  ; 
how  taxed  in  Clreat  IJritain,  i,  520 ; 
fiscal  monopoly  of,   ii,  55'.);    Trust, 
see  .\nierican  Tobacco  Company. 
Total  Utility,  i,  124. 
Toynbee.  i.  110. 
Trade  agri'enients,  ii,  314, 
Tradeniurk,  effect  on  value  and  profits, 

i,  17H:   relation  to  dumping,  i,  212. 
Trade-unions,    see    Contents,    eh.    55; 

out-of-work  benefit,  ii.  330. 
Transferability    of    corporate    shares, 

consecpiences  of,  i,  '.(1. 
Transvaal  mines,  i,  201. 
Travelers'  expcnsi's,  effects  on  imports 

and  exports,  i,  472. 
Truck-farn-  argument  for  protection,  i, 

510. 
Trust  companies,  i   378. 
"Trusts."   see  Contents,  eh.    03;    and 
horizontal  coinbinalioii,  i,  t>0 ;    how 
far  promoted  by  protection,  i,  521  ; 
how  far  monopolies,  ii,   112;    origin 
of  name,  ii,  420. 
Tufts,  ii,  25t. 


Uiidirfed  laborers,  i,  90. 

Undervalued  metal,  under  doublo 
isiMnilMrd.  i.  207. 

Unearned  increment,  ii.  73;  (in  urbiin 
site-   ii.  Its;  on  railways,  ii.  .3^3. 

Uncinplnvmenl.  not  connectiil  with 
protection,  i.  512;  slrenglhens 
falliiey  of  "making  «ork."  ii,  105, 
L'7;t;  io-uniurc  and  other  provision 
against,  ii,  337. 

Unili'l  States,  imd  tv  ogrMplilcal  divi- 
sion of  liibnr,  i.  i3.  41;  worl  ,iu  -f 
prolection,  i  510;  di-lribution  of 
i,„,,„„.  „iir,rt;iin.  ii.  215;  income 
t.i^esin.  ii.  512,544.510  ^ 
■'  Iniled  :<tiltes  notes,"  i.  3L'7. 
riiltrd    sillies    Slid    Corporation,    mp 

.-.tl'l   '    I     llllMllllUi'ii. 

Iilr.n  sites,  ciiiis.s  of  adv-i^tag's,  n. 
7,  rcl  ition  to  piici  -,  ii.  77  ,  ini  i- 
d.^jee  of  taxes  on,  ii.  515,  535. 


■  •  f  I&.  ,  ^  - 


INDEX 


573 


Utility   in   relation   to   valuo,   i     ]  >() 
diminiohing,    i,    122-    total     i'    IM  ' 
marginal,  i,  125  ;  marKinal  of  nion"  v,' 
I,  1.7;   to  spjlcrs,  why  usually  of  ,',„ 
ettect  on  price,  i,  ijo. 


60. 
to    aKricultural 
10!  ; 
114. 


Value  in  i-xclianu...  dofinod,  i,  ii,-,- 
different  meanings  of,  i,  HG  ,,1' 
money,  i,  230. 

V'anderl)ilt,  ii,  41,  390. 

Veblen,  i,  1 10. 

Vertieal  eoniliination. 

V  ested    iiitere.sts,     a.s 
land,  ii,  74  ;  a.s  to  urban  sites,  ii 
as  to.  corporate    securities    ii 
403.  '      ' 

Vienna,   birthrates  'n    different    ouar- 

ters,  li,  227. 
Violence  in  strikes,  ii,  2f)«,  2S0. 

Wages,  money  rat.H  vary  between 
countr.es,  i,4S2;  the  es.senfi.al  cause 
of  mlvantaRe  in  international  trad.', 
1,  502;  what  determiiies  general 
rate  .re  Contents,  eh.  r,\  :  r.lation 
to  standard  of  living,  ii,  221  •  effect 
of  taxes  on  rate  of,  ii,  ,'",.17. 

Wages  argument  for  protedi,,,,   i   .-ii.-j 

>V  agner,  .A.,  i,  .547,  ii,  240,  501. 

Walker,  F.,  ii,  423. 

Walker,  K.  .\.,  ii,  172 

Walsh.  ('.  M.,  i.  440. 

Walsh  banks  (of  Chicago)  i  417 

Wampum,  illustrates  in.1uen<>e  of  con- 
vention on  money,  i,  22') 

War  debts,  n  kind' of  spendthrift  b„r- 
rowmg,  ,  S2;  eff..,.ts  on  rat..  „f 
interest,  ...  20,  32;  ,re  also  Public 
debts. 

^^■ater.  as  u  free  good  and  as  an  eco- 
nomic good,  i,  3.  4. 


I  Water   conipc  tition   with    lailwavs,    ii, 

Watir    lower,     brinus    conditions    of 
vaniimco.st,  i,  iss;    i,„„,  far  suited 
lor  public  iiianagenient,  ii,  4U3 
\\att,  i,  .Jo,  ii,  105,  402. 
\\'ealth,  »■(«•  Contents,  1  h    I 
\\''1>1),  ii,  .Jo'.l. 

\\  elfare  arran>,'enuiits.  ii  310 
W.ll.s,  H.  G.,  ii,  470. 
^\'el.-ibucll  in:inli;s,  i,  207. 
\\estniiri.ster.  flulic.  nf,  ii,  i)i) 
Wheat,  .■ultun.  i.  oil:  s'..,.|-,nnal  .siippjv 
virtually  fix.'.l.i,  l,-,():   l„,u  pri,,.  tM.-,- 
lie   affcctcil    by  cornt  is.    i,  210-   hI|.- 
exported  fioiii  liiifid  ,<laO'S.  i'  .l,s;j'. 
"lilTcri'iit   po.-ilioii.s  of   Ci.ited    StDtei 
and    Russia   as   exporters  o',   i,   ,';ii,j. 
predatory   cultivation,   ii,   00;    yield 
per  acre,  ii,  07. 
W  icksteed,  i,   ]  1  (. 
W  ii'be,  i,  2.">7. 
\\illcox,  W.  r..  li,  224. 
Willis,  II.  I'.,  i,  4.),-, 
Withers.  II.,  i,  44,-,. 
\\  olfe,  ii,  22S. 

Uool.  why  coar.se  gnidrs  imported  into 
fiiit.d  .States,  i,  4SS;  varying  natu- 
ral conilitioiis  in  fiiit,,!  .s;),,,,,^  j_ 
402;  clothing,  amount  of  custom.s 
tax  on,  ii,  55s. 
W.xil-scouring  and  utilization  of  iirea.se 

i,  .">5,  220. 
\^■onlen.  wages  of,  ii,  pj:;. 
Worknu'u's    insurance,    .„c    Contents 


Vouiig.  A.  .A.,  ii.  2:<2,  211. 

Voung    industries,    protection    to     i 

52(i. 
Vule,  ii,  224. 


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1 


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Principles  of  Economics.    Vol.  I 

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Principles  of  Political  Economy 

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Economy  in  the  University  of  Edinburgh. 

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Dictionary  of  Political  Economy 

Edited  by  R.  H.  Inglis  Palgrave,  F.R.S. 

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dix, 1906-9. 

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taining ample  and  trustworthy  information,  an  abundance  of  verified 
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Introduction  to  Public  Finance 

Hy  Carl  Copping  Plehn,  Ph.D.,  Professor  of  Finance  in  the 
University  of  California. 

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